Wilmar International - DBS Research 2020-02-21: Resisting The Virus

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WILMAR INTERNATIONAL LIMITED (SGX:F34)

Wilmar International - Resisting The Virus

• Wilmar's 4Q19 earnings beat estimates – Tropical Oils led the performance.
• Eyeing US$1.2bn earnings in 2020 – ‘cautiously optimistic’ outlook baked into our forecast.
• China operation listing still alive but may be delayed due to COVID-19.
• Maintain BUY with Target Price of S$4.60.

4Q19 round-up: Tropical Oils led the way

Reported 4Q19 profit beat consensus.

• Wilmar (SGX:F34)'s 4Q19 core net profit of US$410.0m (+23% y-o-y/-1% q-o-q) beat consensus estimate as revenues came in at US$11.3bn (+1% y-o-y, flat q-o-q) on higher consumer product sales and sugar merchandising activities. A well-integrated platform enables Wilmar to benefit from both low (1H19) and high (2H19) palm oil price trend. The set of results was primarily driven by strong Tropical Oils, as well as crushing performance, a similar trend as in 3Q19.

Tropical Oils business continues to see higher sales volumes and margins.

• Profit before tax from Tropical Oils segment was US$287.3m (+214% y-o-y, +49% q-o-q) due to strong performance in merchandising businesses and downstream processing margins. This was boosted by higher contributions from plantations due to higher palm oil prices. For FY19, profit before tax improved 54% to US$841.6m.

Oilseeds and Grains saw improvement in crush margins.

• Profit before tax declined to US$185.4m (+61% y-o-y, -39% q-o-q), as crushing margins continued to improve from 1H19 lows; 4Q19 also saw strong seasonal demand for consumer products as a result of an earlier Lunar New Year. For FY19, profit before tax declined to US$636.9m (-27% y-o-y) due to poorer 1H19 results from lower crushing volumes and margins, affected by African swine fever.

Sugar sees losses for the quarter, profitable for the year.

• Wilmar saw pre-tax losses for the quarter of US$9.7m, reversing from profits in 3Q19 (US$80.1m). For FY19, the segment saw US$2.6m profit before tax compared to losses of US$128.2m in FY18 due to profits in refining. Wilmar continues to drive sales volumes across the segment.

Mixed contributions from “others” and joint ventures and associates.

• “Others” segment saw pre-tax profits of S$53.0m (+302% y-o-y) due to mark-to-market gains from investment portfolio and profits from shipping, reversing from losses in 3Q19. Joint ventures and associates contributed US$85.2m (- 63% y-o-y/+344% q-o-q) as Wilmar’s investments in China, Africa and Vietnam saw weaker performance.

Balance sheet: Stable gearing ratio

• Ending cash & cash equivalents were stable at US$2.1bn (3Q19: US$2.1bn) while net debts were higher at US$13.2bn (3Q19: US$11.7bn). This translates into reported net gearing ratio of 0.79x (FY18: 0.84x). Including liquid working capital, net gearing ratio would have been 0.37x (FY18: 0.34x).

Dividends

• Final dividend of S$0.095/share declared, FY19 dividends of S$0.125/share is the highest cash dividend declared since listing (FY18: S$0.105/share).

Outlook:

Cautiously optimistic stance baked into our flat y-o-y earnings growth at US$1.2bn in 2020.

• Management sounds cautiously optimistic in 2020 since Wilmar’s exposure to the food industry will provide cushion against the commodities’ price volatility and challenging operational environment.
• We believe our decision to maintain our overall FY20 earnings forecast of US$1.23bn (-0.6% y-o-y) reflects that Wilmar can withstand the current COVID-19 outbreak while the palm oil division benefits from the CPO price recovery (DBS expects palm oil price to recover 19% y-o-y to US$596 per MT in 2020). Our 2020 earnings forecast is 8% below consensus mainly on lower profitability assumption from the Tropical Oils division as we expect higher palm oil prices to result in lower refiner’s profitability.
• Wilmar is on track to list its China operations and is at regulatory approval stage, although it slightly delayed to 3Q20 due to the COVID-19 issue.

Maintain BUY with Target Price of S$4.60

• We believe Wilmar’s share price is attractive at the current level – despite the slight delay in China listing and COVID-19 implications on business and consumer sentiment. Accumulating Wilmar at its current share price entails owning its China operation at good value, at a bundled PE multiple of 15x.
• See Wilmar Share Price; Wilmar Target Price; Wilmar Analyst Reports; Wilmar Dividend History; Wilmar Announcements; Wilmar Latest News.
• Meanwhile, Wilmar’s food businesses are still trapped around the valuation of Singapore-listed palm oil plantation companies’ 2020 PE multiple of 15-16x, which we believe is not justified given its comprehensive China operation and scale.

William Simadiputra DBS Group Research | Rui Wen LIM DBS Research | https://www.dbsvickers.com/ 2020-02-21

SGX Stock Analyst Report BUY MAINTAIN BUY 4.600 SAME 4.600