Wilmar International 1Q20 Results Preview - UOB Kay Hian 2020-04-30: Likely To Be The Weakest Quarter For 2020


Wilmar International 1Q20 Results Preview - Likely To Be The Weakest Quarter For 2020

  • Wilmar International is moving its financial reporting to half yearly, but will release an executive summary for its 1Q20 results on 11 May 20. For 1Q20, we are expecting a core net profit of US$210m-225m but reporting profit could be lower due to mark-to-market losses for its securities investment to reflect the sharp drop in global equity market.
  • Wilmar International's 1Q20 earnings are expected to be weaker q-o-q due to the absence of CNY demand and the impact of the COVID-19 outbreak on Chinese demand.
  • Maintain BUY. Target price: S$4.00.

Wilmar International - Expecting weak 1Q20 earnings.

  • Wilmar International (SGX:F34) is schedule to release 1Q20 financial executive summary on 11 May 20. The executive summary will provide key financial information as well as a business commentary and outlook for the first and third quarter’s performance.
  • For 1Q20, we are expecting core net profit of US$210m-225m, lower q-o-q (4Q19: US$410m) and y-o-y (1Q19: US$250.3m). However, reporting profit could be lower with potential mark-to-market losses for investment in securities. As at end-Dec 19, the total quoted equity instruments (at fair value through profit & loss) under current assets was US$315.5m.

Tropical oil PBT may be lower yoy and q-o-q on lower utilisation.

  • For 1Q20, the weakness is likely to come from tropical oil division as we are expecting lower y-o-y and q-o-q contribution. Recall that 2019 was a very good year for the tropical oil division with better profit margins as the pricing of end products did not fall as sharply as raw material prices (CPO and PKO).
  • For 1Q20, we foresee potential lower margins due to lower utilisation rate as total palm oil and palm kernel production in Malaysia and Indonesia is estimated to be down by 13-15% y-o-y.

Impact of China’s 1Q20 lockdown may be severe.

  • Wilmar International’s China operations are expected to post marginal y-o-y growth due mainly to the lower base in 1Q19 (PBT: US$91m, 4Q19: US$185m) To recap, in 1Q19, China’s soybean crushing business was badly affected by the outbreak of African Swine Flu.
  • Wilmar International’s operations are in mainly in the essential industry, providing consumer staples, and were allowed to operate during the lockdown period albeit at lower utilisation. The sales of consumer pack were strong but offset by the weaker sales to hotel, restaurants and café (HORECA).
  • 2Q20 is likely to see better contribution from this segment as:
    1. restaurant sales have improved ever since China began to ease the lockdowns,
    2. soybean crushing has improved, and
    3. consumer pack sales remain strong.

Sugar is volatile

  • 1Q20 would see contribution from Shree Renuka Sugar Sugars with the ongoing sugar milling season in India. However, the contribution may not be significant as compared with Australia’s season which starts in May. However, we may see better contribution from its sugar refining operations as the spread between raw sugar and white sugar price should widen, and translate into better refining margins.
  • Sugar division is likely to contribute a small profit in 1Q20 (1Q19: US$1.7m).

Approval for YKA listing expected this year.

  • In the recently-released 2019 Annual Report, it was stated that the proposed listing of Yihai Kerry Arawana Holdings (YKA) on the Shenzhen Stock Exchange is progressing within the standard time frame. It is expected to receive approval for the listing this year, despite the possibility of a slight delay due to the COVID-19 outbreak.

Maintain BUY with target price of S$4.00.

Leow Huay Chuen UOB Kay Hian Research | Jacquelyn Yow UOB Kay Hian | https://research.uobkayhian.com/ 2020-04-30
SGX Stock Analyst Report BUY MAINTAIN BUY 4.000 SAME 4.000