Wilmar International 4Q19 Results Preview - UOB Kay Hian 2020-01-30: Good Earnings To Provide Best Comfort To Investors

WILMAR INTERNATIONAL LIMITED (SGX:F34) | SGinvestors.io WILMAR INTERNATIONAL LIMITED (SGX:F34)

Wilmar International 4Q19 Results Preview - Good Earnings To Provide Best Comfort To Investors

  • Wilmar is scheduled to issue its 4Q19 results on 20 Feb 20. We are expecting 4Q19 core net profit of US$350m-370m, bringing full-year core net profit to US$1.20b-1.21b, in line with our estimate but 3-4% above consensus forecast. Earnings were again supported by a resilient performance from tropical oils in 4Q19, while lower oilseeds and grains margins would have been well compensated for by good volume growth on early CNY demand.
  • Maintain BUY. See Wilmar Target Price.



WHAT’S NEW


Share price weakens on concerns of a consumption slowdown in China.

  • WILMAR INTERNATIONAL (SGX:F34)’s share price weakness provides an opportunity to accumulate while the next catalysts should come from the upcoming good results report. Wilmar's share price was down by 8.9% from its recent peak of S$4.38 due to concerns over China’s coronavirus outbreak which is threatening to:
    • impact Chinese consumption; and
    • potentially delay the listing of Yihai Kerry Arawana (YKA) due to weak market sentiment.

Research on economic impact of SARS shows that food expenditure is more resilient amid an epidemic.

  • A research paper focusing on the SARS outbreak’s impact on the Beijing economy showed that food expenditure was down by 18.5% y-o-y in May 03 when SARS was at its peak. However, in 2003, total food expenditure was actually up by 5.9% y-o-y.
  • The research paper also highlighted that spending on necessities was postponed, as seen in the 24.1% y-o-y growth in food expenditure in Nov 03. (Source: “The economic impact of SARS in Beijing, China” by Philippe Beutels, Na Jia Qing‐Yi Zhou, Richard Smith, Wu‐Chun Cao Sake J. De Vlas, 7 Oct 09).

Expecting 4Q19 core net profit to come in within expectation.

  • Wilmar’s 4Q19 results is scheduled to be announced on 20 Feb 20. We are expecting a core net profit of US$350m- 370m, which will bring full-year core net profit to US$1.20b-1.21b, in line with our expectation (consensus: US$1.17b).
  • 4Q19 is likely to have seen steady contribution from the tropical oils division and we are also expecting oilseeds & grains to deliver good profits supported by strong sales volumes (front-loaded Chinese New Year (CNY) sales volumes) in 4Q19.

YAK listing behind schedule but not a concern.

  • YKA’s listing process is behind schedule but this is not a concern as the company continued to deliver a good set of results. Strong 2H19 performances from China operations could put YKA’s earnings on par or just marginally lower vs 2018 levels.
  • For 1H19, YKA reported a net profit of Rmb1,597m (or ~US$230m) or 53.9% of Wilmar’s 1H19 core net profit (vs 2018 was 59.2%).


STOCK IMPACT


Earnings sensitivity.

  • It is too early to conclude the potential impact of the coronavirus on China’s consumption. Moreover, Wilmar’s exposure mainly relates to consumer staples, ie cooking oil, rice and flour which may see delayed spending or switch of demand from bulk (demand from Hotels, Restaurants and Cafes (HoReCa)) to consumer packs.
  • Among Wilmar’s three main business operations, soybean crushing may see more headwinds as demand for animal feed may remain subdued due to lower consumption of meat (fear of virus transmission from meat). The following table summarises our earnings sensitivity study based on two scenarios:
    1. lower oilseeds & grains manufacturing sales volume, and
    2. lower PBT margins from oilseeds & grains.


EARNINGS REVISION/RISK

  • No change to our earnings estimates. We forecast core net profits of US$1,205m, US$1,348m and US$1,443m for 2019-21 respectively.


VALUATION/RECOMMENDATION



SHARE PRICE CATALYST


Good 4Q19 results announcement.

  • The company’s 4Q19 performance should have been driven by a stronger performance from consumer products given an earlier CNY 2020 and better oilseeds crushing margins.

YAK listing behind schedule but not a concern.

  • YKA’s listing process is behind schedule but this is not a concern as the company continued to deliver good results. YKA’s IPO prospectus has been updated until 1H19 financials in Dec 19. For 1H19, YKA reported a net profit of Rmb1,597m (~US$230m), or 53.9% of Wilmar’s 1H19 core net profit (2018: 59.2%).
  • Strong 2H19 performance from China operations could put YKA’s earnings on a par or just marginally lower vs 2018 levels.





Leow Huey Chuen UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-01-30
SGX Stock Analyst Report BUY MAINTAIN BUY 4.750 SAME 4.750



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