Wilmar International - CGS-CIMB Research 2019-08-13: Eyeing Listing Of China Business In 2H?

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WILMAR INTERNATIONAL LIMITED (SGX:F34)

Wilmar International - Eyeing Listing Of China Business In 2H?

• Wilmar’s 1H19 results were broadly in line with expectations.
• 1H19 core net profit fell 20% y-o-y, due mainly to weaker crush margin.
• Wilmar projects better 2H19 crush margin.
• Maintain ADD with a higher Target Price of S$4.58 per share (based on SOP).
• Key catalyst is listing of China assets.

1H19 results broadly in line with expectations

• WILMAR INTERNATIONAL LIMITED (SGX:F34) posted a 50% y-o-y and 29% q-o-q drop in its 2Q19 core net profit (excluding non-operating items) to US$177m due to weaker performances from its oilseeds and grains as well as sugar divisions. As a result, core net profit fell 20% in 1H19.
• The half time results were broadly in line, making up 35% of our and 34% of consensus full-year projections.
• Over the past five years (excluding 2016), 1H core net profit has on average made up 35% of its full-year core net profit. In line with the weaker results, the group proposed a lower interim dividend of S$0.03 per share in 1H19 (vs. S$0.035 in 1H18).

Key surprises in 2Q vs. our expectations

• We were slightly surprised that the oilseeds and grains segment profit of US$59m in 2Q19 was weaker than 1Q19’s US$91m, due mainly to lower crush volumes and margins as the business continued to be affected by the African swine fever outbreak.
• However, we were positive on the better results from the tropical oils division (+15% y-o-y) in 2Q19 as better downstream margins trumped lower CPO prices and FFB output (-10% y-o-y).
• The sugar division posted losses of US$69.4m in 2Q19 and US$67.7m in 1H19 due to the consolidation of Shree Renuka Sugar Ltd. This more than offset the better performances from its Australia and Indonesian operations.

Agribusiness processing more resilient against slowing economy

• Wilmar revealed that it will likely take several years to eradicate the African swine fever that has impacted China’s soybean meal demand. However, the lower China hog production will be offset partially by strong growth in the poultry sector.
• Wilmar added that the slowing economy, due partly to the US-China trade conflict, has not impacted Chinese domestic consumption of food. The group is seeing stronger demand for better quality food products in China and as such, is not overly concerned about the current external environment.

Maintain ADD with a higher SOP-based Target Price of S$4.58

• Wilmar expects the margins of its crushing business and other segments to perform better in 2H19, which is in line with our expectation.
• We cut our FY19-21F earnings forecasts by 1-4% and raise our SOP-based target price to S$4.58 per share.
• We raise our valuations for its oilseeds and grains as well as palm and lauric business to 1.2x P/BV, as we expect the listing will unlock value for the oilseeds and grains business.
• We continue to like Wilmar for its attractive valuations and proposed plan to list its China operations. The stock currently trades at a forward P/E of 16x and P/BV of 1.1x.
• Key risks to our view are lower-than-expected crush margin and sales volumes.

Ivy NG Lee Fang CFA CGS-CIMB Research | https://research.itradecimb.com/ 2019-08-13

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