Wilmar International - OCBC Investment 2019-11-14: A Better Quarter


Wilmar International - A Better Quarter

  • Wilmar International’s 3QFY19 PATMI grew 10.2% y-o-y.
  • Stronger sales volume.
  • Improved crush margins.

Results were above expectations

  • WILMAR INTERNATIONAL (SGX:F34)’s 3QFY19 overall sales volume grew 6% while revenue fell 2% y-o-y to US$11.2b due to lower commodity prices. See Wilmar Announcements.
  • PATMI increased by 10.2% y-o-y to US$447.1m this quarter, boosted by Tropical Oils and Consumer Products, as well as the recognition of a gain from the disposal of the group’s discontinued operations in Brazil, partially offset by lower contributions from associates and joint ventures (-63% y-o-y).
  • For 9MFY19, PATMI, however, fell 7.6% y-o-y to US$855.0, making up 79% of initial full year forecast, which we consider to be above our expectations.

Stronger performances across key business segments

  • Wilmar International reported better performances across all key business segments:
    • Tropical Oils (PBT: +24% y-o-y),
    • Oilseeds and Grains (O&G) (PBT: +1% y-o-y), as well as
    • Sugar (PBT: +9% y-o-y).
  • Tropical Oils continued to perform in 3QFY19, primarily driven by its mid and down-stream Manufacturing and Merchandising business which reported a growth of 5.2% y-o-y in sales volume and improved processing margins. However, the overall performance was dragged by Tropical Oils’ upstream business – Plantation, which was negatively impacted by lower CPO prices and lower production yields (-5.0% y-o-y) due to dry weather.
  • For O&G segment, we saw some improvement with its PBT growing both y-o-y and q-o-q. The better performance was mainly driven by Consumer Products (sales volume: +8.1% y-o-y, better than our expectation), supported by improved crush margins. However, African swine fever remained a drag, which continues to weigh on Manufacturing. As such, overall sales volume of O&G fell marginally by 2%.
  • Separately, performance of Sugar was also good, on the back of stronger performance from the sugar refineries, partially offset by milling operations.

YKA is expected to be listed in 1QFY20

  • Management noted that they are still in the process pending China Securities Regulatory Commission (CSRC)’s approval to list Yihan Kerry Arawana (YKA), which is likely to be approved by January 2020. We expect the listing date likely to be in 1QFY20 and anticipate a special dividend post IPO.
  • We like Wilmar International’s diversification of products and continued efforts to expand its downstream business which could help smooth the volatility of earnings.
  • With improved crush margins, rising CPO prices and early Chinese New Year in 2020, we expect a stronger 4QFY19 and the impending IPO should remain as a potential near-term catalyst.
  • See Wilmar Share Price; Wilmar Target Price.

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2019-11-14
SGX Stock Analyst Report BUY MAINTAIN BUY 4.260 SAME 4.260