Wilmar International - UOB Kay Hian 2019-05-13: 1Q19 Strong Results Despite Lower Soybean Crushing


Wilmar International - 1Q19: Strong Results Despite Lower Soybean Crushing

  • WILMAR INTERNATIONAL LIMITED (SGX:F34) reported a core net profit of US$250m (-25% q-o-q, 36% y-o-y), 20% above our expectation with positive surprises from the tropical oils and sugar segments despite low soybean crushing and commodity prices. The tropical oils segment’s PBT margin for 1Q19 was at a record high of 4.8% (highest level since 2015).
  • Management guided for better soybean crushing margins and a positive performance from tropical oils in 2Q19.
  • Maintain BUY. Target price: S$3.90.


Results above expectation.

  • WILMAR INTERNATIONAL LIMITED (SGX:F34) reported a core net profit of US$250m (-25% q-o-q, +36% y-o-y) for 1Q19, accounting for 20% of our full-year estimate. The results were above 20% of our expectation (US$190m-210m) with better-than-expected earnings from the tropical oils and sugar segments despite the weakness from soybean crushing.

Oilseeds & grains: Within our expectation but better than market expectation.

  • The results prove that the market was overly concerned about the weak performance of the soybean crushing segment amid the African Swine Fever outbreak in China and the sharp decline in Brazil’s soybean prices in late-4Q18. However, the weak performance for this segment was partially mitigated by stronger contributions from consumer products, rice and flour milling as well as effective management of the group’s “beans” position.

Strong performance from tropical oils segment.

  • The tropical oils segment had reported a PBT of US$184m (+37% q-o-q; +81% y-o-y) which was boosted by a stronger performance from the manufacturing and merchandising business, supported by higher sales volumes and better margins. The PBT margin for this segment was at 4.8% for 1Q19, a record high since 2015. The strong performance was partially offset by lower CPO prices and production yields from the plantation business.

Sugar’s performance bounced back into the black.

  • The better sugar performance was driven by a stronger performance from refining and merchandising activities. The results were further boosted by positive contribution from Shree Renuka Sugars (SRSL), which is in-line with the ongoing sugar milling season in India.


Oilseeds & grains.

  • Management had guided on better crushing margins for 2Q19.
  • We believe the better crushing margins in 2Q19 would be attributed to the arrival of cheaper soybean (high-priced Brazilian soybean likely to have been crushed in 1Q19) and a slight improvement in utilisation rate. However, sales volumes might remain weak as demand for soybean meal is still low amid the African Swine Fever outbreak in China.

Tropical oils & sugar.

  • Tropical oils are expected to do well as feedstock prices are still relatively low. Thus, the good downstream margins may sustain into 2Q19. The recent recovery of sugar prices and higher sugar base prices in India should be able to see positive contribution from the sugar division.
  • More outlook guidance will be available after the briefing on 15 May 19.


Maintain earnings forecasts.

  • We maintain our net profit forecasts of US$1.24b and US$1.43b for 2019-20 respectively.
  • We introduce net profit forecast of US$1.51b for 2021.


Maintain BUY and target price of S$3.90.

  • This translates into 13.7x 2019F blended PE, which is slightly higher than Wilmar’s five-year mean (1-year forward PE of 13.2x). We ascribe 20x 2019F PE for the oilseeds & grains division, 15x PE for the tropical oils division, 8x PE for the sugar division and 10x PE for the other businesses.
  • We believe there is still upside to Wilmar’s share price despite the 17% ytd rise as current share price is only factoring in 17x PE for its China operation.
  • Our fair value of S$3.90 factors in 20x PE for the China operations. Assuming 23x and 25x PE, our fair value would be at S$4.10 and S$4.25 respectively.


  • Potential listing of China operations.
  • Value-enhancing M&As.

Leow Huay Chuen UOB Kay Hian Research | Singapore Research Team UOB Kay Hian | https://research.uobkayhian.com/ 2019-05-13
SGX Stock Analyst Report BUY MAINTAIN BUY 3.900 SAME 3.900