Wilmar International - RHB Invest 2019-05-13: Positive Surprise Despite Downbeat Guidance

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WILMAR INTERNATIONAL LIMITED (SGX:F34)

Wilmar International - Positive Surprise Despite Downbeat Guidance

• Reiterate BUY on this sector/country pick, new Target Price of SGD3.80 from SGD3.63, 8% upside plus 3% FY19F dividend yield. 
• Although management previously guided for an adverse quarter for its soybean crushing business, 1Q19 core PATMI surged 33% y-o-y as stronger numbers from tropical oils refining, consumer packs and sugar businesses more than offset the negative soybean crush margin.
• 1Q19 PATMI of USD270m met 22% of our full-year estimate. WILMAR INTERNATIONAL LIMITED (SGX:F34)’s results have outperformed our estimate.

Expect a good year for tropical oils.

• Pretax profit for tropical oils segment soared 81% y-o-y. Despite lower production yield and CPO prices crippling its plantation business, the group benefited from lower feedstock costs in its refining and downstream business.
• Meanwhile, biodiesel should have seen stronger margins during the quarter due to gasoil and palm oil price differentials. We believe 2Q19 should remain strong on the back of low input costs for its downstream segment.

Volume growth in consumer products mitigate decline in soybean crushing business.

• Crush margins were negative in 1Q19 as a result of lower demand for soybean meal and the decline in Brazilian beans. This was mitigated by reduced crushing activities as well as stronger sales volumes of rice and flour products and downstream consumer packed goods.
• Overall, pretax profit for the oilseeds and grains segment still fell 47% y-o-y but this was offset by growth in the tropical oils segment.

Turnaround from sugar business also contributed to stellar results.

• Contributions from Shree Renuka Sugars and stronger contributions from merchandising activities helped the sugar segment turn around from USD39m losses booked in 1Q18, to a small profit of USD2m.

Earnings projections up by 5%/1%/2% for FY19-21.

• We increase our forecasts mainly on stronger downstream margins for tropical oils and the sugar business’ improving performance. As a result, our SOP-based Target Price rises to SGD3.80 from SGD3.63.
• There is an analyst briefing scheduled for 15 May, during which management will share further details on its numbers.

Juliana Cai CFA RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-05-13

SGX Stock Analyst Report BUY MAINTAIN BUY 3.80 UP 3.630