Wilmar International - OCBC Investment 2019-05-15: Boosted By Tropical Oils


Wilmar International - Boosted By Tropical Oils

  • Decent set of results.
  • Crush margins to improve in 2Q19.
  • P/B close to 5-yr mean.

1Q19 results generally within expectations

  • WILMAR INTERNATIONAL LIMITED (SGX:F34)’s revenue fell 6.2 y-o-y to US$10.4b but its net profit rose 26.4% to US$257.0m in 1Q19, such that the latter accounted for 21% of ours and the street’s full year expectations.
  • There was a US$21.7m loss from discontinued operations, mainly due to the operating losses and finance costs incurred by the Brazilian operations under Shree Renuka Sugar. Excluding this, 1Q19 net profit would have met about 23% of our full year forecast.

Improvement in Tropical Oils and Sugar; dragged by Oilseeds and Grains

  • Pre-tax profit for Tropical Oils increased by 80.8% y-o-y to US$183.8m in 1Q19, boosted by the manufacturing and merchandising business on the back of better sales volume and margins. This was partially offset by lower CPO prices and production yields.
  • In Oilseeds and Grains, pre-tax profit was lower 47.2% y-o-y at US$91.1m, dragged by poor results from the crushing business, which had been impacted by the African swine fever outbreak in China and the sharp drop in basis for Brazilian beans. This was mitigated by reduced crushing activities and management of the group’s beans position.
  • Stronger contributions from the Consumer Products, Rice and Flour milling businesses also aided performance.
  • As for Sugar, pre-tax profit was US$1.7m compared to pre-tax loss of US$39.0m in 1Q18, driven by stronger performance from refining and merchandising activities. This was further boosted by contributions from Shree Renuka Sugars, in line with the ongoing sugar milling season in India.

Good performance amid tough operating environment

  • Wilmar had earlier guided on a potentially weaker performance from the crushing business, but good management in that segment and better contributions from other parts of the group’s diversified portfolio have allowed it to report a reasonably good set of results. The improved performance by both Tropical Oils and Consumer Products since 2Q18 has also been encouraging.
  • Looking ahead, crush margins are expected to improve in 2Q19, while we would monitor Wilmar’s sugar milling and palm plantation segments.
  • We fine-tune our assumptions and also increase our P/B valuation from 0.9x to 0.95x (5-year historical average), such that our fair value rises from S$3.44 to S$3.66.
  • Maintain HOLD.

Low Pei Han CFA OCBC Investment Research | https://www.iocbc.com/ 2019-05-15
SGX Stock Analyst Report HOLD MAINTAIN HOLD 3.66 UP 3.440