Wilmar International - UOB Kay Hian 2019-11-13: 3Q19 Results Within Expectations

WILMAR INTERNATIONAL LIMITED (SGX:F34)

Wilmar International - 3Q19 Results Within Expectations

Wilmar International’s 3Q19 core net profit is in line with our expectations. PBT came in above expectation with strong performances from the oilseeds & grains and sugar segments.
We reckon that 4Q19 results would remain strong with good contribution from the oilseeds & grains segment with stronger demand before Chinese New Year in Jan 19. Contributions from the sugar segment should be better y-o-y in 4Q19 with an improving performance from Renuka Sugar.
Maintain BUY. Target price: S$4.40.

WILMAR INTERNATIONAL (SGX:F34) reported 3Q19 core net profit of US$419m ( > 100% q-o-q, -3% y-o-y), within our expectation but above consensus. Profit before tax came in above expectation due to a stronger-than-expected performance from the oilseeds & grains and sugar divisions. Net profit was in line as the effective tax rate was higher in 3Q19. See Wilmar Announcements; Wilmar Latest News.

The segment’s PBT rose 9% q-o-q and 24% y-o-y, boosted by a strong performance from the manufacturing and merchandising business, including oleochemicals. This was achieved on the back of higher sales volume and improved processing margins in 3Q19. This was partially offset by lower CPO prices and poduction yield due to drier weather from the plantation business.

The strong q-o-q earnings for the oilseeds and grains segment came on the back of better PBT margins at 5.3% (2Q19: 1.2%). Crushing margins and volumes had improved from 1H19. However, sales volume for manufacturing was dragged down by the effects of the African swine fever. Thus, the sales volume for the oilseed and grains segment increased marginally by 1% y-o-y.

The high earnings were mainly driven by a stronger performance from sugar refineries and higher sales volume. The sales volume from the milling business was mainly driven by higher contribution from the Australian milling operations. This was partially offset by weaker contribution from milling operations due to lower sugar prices.

We reckon that 4Q19 would remain strong on the back of a good performance from oilseed & grains as 2020 Chinese New Year (CNY) will take place in end-Jan 20, which means pre-CNY demand will come in 4Q19 instead of the usual 1Q.
Further to that, the sugar segment might also remain strong in 4Q19 as contribution from Renuka Sugar would come into the picture in 4Q19 with India’s sugar crushing season taking place in October-February.

We forecast core net profits of US$1,205m, US$1,348m and US$1,443m for 2019-21 respectively.

Maintain BUY and target price of S$4.40, which reflects a blended 23x 2019F PE for China operations and blended 11x PE for non-China operations.
Accumulate at current price to ride on the better 2H19 earnings and the unlocking of value through the listing of YKA on the ChiNext board of the Shenzhen Stock Exchange. This would support share price in the near term, and we expect a further re-rating once the IPO is completed.

With its strong market positioning and branding in China, we expect share price to perform well upon listing. This could lift trading sentiment on Wilmar International as well. Post listing of YKA, we expect Wilmar International to declare a special dividend, which could lift dividend yield by 2-2.5ppt on top of the expected 1.5% yield from the annual dividend. See Wilmar Dividend History.
Our current SOTP valuation is based on 2019F earnings. See Wilmar Share Price; Wilmar Target Price.

Leow Huay Chuen UOB Kay Hian Research | Singapore Research Team UOB Kay Hian | https://research.uobkayhian.com/ 2019-11-13

SGX Stock Analyst Report BUY MAINTAIN BUY 4.400 SAME 4.400