Wilmar International - OCBC Investment 2019-02-22: 1Q19 To See Weaker Crush Margins

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WILMAR INTERNATIONAL LIMITED (SGX:F34)

Wilmar International - 1Q19 To See Weaker Crush Margins

• Wilmar International's 4Q18 core net profit in line.
• Warns of crush margins in 1Q19.
• Tropical Oils to provide support.

4Q18 Underlying profit in line

• WILMAR INTERNATIONAL LIMITED (SGX:F34) registered a 3.0% y-o-y fall in revenue to US$11.1b but saw a 52.9% fall in net profit to US$200.9m in 4Q18, bringing full year net profit to US$1.13b vs FY17’s net profit of US$1.2b.
• Results were impacted by a US$137.8m provision for impairment on the goodwill and sugar milling assets in Australia, due to continued depressed sugar prices. Management has decided to make a provision even though the milling operations have been generating positive cashflows since acquisition.
• For 4Q18, core net profit decreased by 10.3% to US$334.7m mainly due to the African swine fever outbreak in China, coupled with weaker commodity prices that impacted the upstream operation in Sugar Milling and Palm Plantation. Excluding one-offs, results were generally within expectations.

Tropical Oils to continue to do well

• Tropical Oils reported a 37% increase in pretax profit to US$546.1m in FY18, as lower commodity prices benefited the downstream businesses through lower feedstock costs. This was partially offset by weaker contributions from the plantation business due to lower palm oil prices.
• Looking ahead, management believes that Tropical Oils should continue to do well in 2019.

But 1Q19 soybean crush margins to be weak

• Oilseeds and grains saw a 20% rise in pretax profit to US$875.0m in FY18. However looking ahead, crush margins for 1Q19 will be adversely impacted by
  1. the sharp decline in meal demand from the outbreak of African swine fever in China and
  2. a sharp drop in Brazilian soybean basis, but this is expected to improve in 2Q19.

Taking steps to prepare for China IPO

• Meanwhile, Wilmar International has also recently converted its China holding company into a joint-stock company, with a view to a possible separate listing in China.
• A final dividend of S$0.07/share has been declared, bringing the full year dividend to S$0.105, compared to S$0.10 last year.
• We tweak our estimates and our Fair Value estimate falls from S$3.42 to S$3.31 (still based on 12.5x forward P/E).

Low Pei Han CFA OCBC Investment Research | https://www.iocbc.com/ 2019-02-22

SGX Stock Analyst Report HOLD MAINTAIN HOLD 3.31 DOWN 3.420