Wilmar International - RHB Invest 2019-02-25: Opportunities To Accumulate; Sector Top Pick


Wilmar International - Opportunities To Accumulate; Sector Top Pick

  • Maintain BUY with higher Target Price of SGD3.63, from SGD3.58, 11% upside, with 3.2% yield.
  • WILMAR INTERNATIONAL LIMITED (SGX:F34) is our country and plantation sector Top Pick. We raise our FY19F-21F earnings 1-4% as we expect higher contributions from tropical oils and consumer products.
  • Management guided poor crushing margins in 1Q19; we believe share price is likely to be suppressed till post 1Q19 results, which pose a window of buying opportunities for long term investors.
  • China IPO is still on the plate and as per our previous report Wilmar International: Upside From Potential China IPO; we believe the China listing could be a catalyst to re-rate the stock to SGD4.37.

Double whammy for oilseeds & grains in 1Q19.

  • Wilmar’s soybean crush margin is adversely impacted both on the demand and trading side in 1Q19. The group expects soybean crush volumes to drop c.25% y-o-y in 1Q19 as a result of African Swine Fever and a high base effect in 2018.
  • We note that soybean constitutes 50-60% of oilseeds & grains sales volumes. On a full year basis, we are less pessimistic on sales volumes.
  • We expect oilseeds & grains volume to fall c.3% as growth in rice and flour offset the lower demand in soybean meal.

Last Friday, China committed to buy an additional 10m tonnes of US soybeans.

  • We believe the improving trade situation between China and the US would be beneficial to Wilmar in the long term, as it would then not be limited to buying Brazilian soybeans.
  • In the short term, we expect Brazilian soybean basis to narrow, which should also benefit Wilmar in 2Q19, given that it is now the season to buy Brazilian harvest.

Tropical oils should do better.

  • During the analyst briefing, management guided that tropical oils should continue to do well in 1H19 on a strong downstream demand. Wilmar has also secured adequate low-cost inventories for its downstream production for 1H19.

Change in forecasts.

  • We raise our FY19F-21F earnings 1-4%, as we now expect higher contributions from tropical oils and consumer products while partially offset by weaker crush margins. This raises our SOP valuation to SGD3.63 from SGD3.58.

Juliana Cai CFA RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-02-25
SGX Stock Analyst Report BUY MAINTAIN BUY 3.63 UP 3.580