Wilmar International - OCBC Investment 2020-05-18: Consumer Demand To Remain Strong In 2Q


Wilmar International - Consumer Demand To Remain Strong In 2Q

  • Wilmar's 1Q20 core PATMI grew 22.5% y-o-y.
  • Strong consumer products demand.
  • YKA IPO is expected to be approved in 2H.

New segment classifications

  • Wilmar (SGX:F34)’s 1Q20 revenue was up 4.6% y-o-y to US$10.9b on the back of strong household consumption, partially offset by lower demand from the hotel/restaurants/catering (HORECA) segment due to lockdowns. 1Q20 PATMI fell 12.7% y-o-y to US$224.3m, representing 16% of initial forecast while core PATMI grew 22.5% y-o-y to US$306.5m. Overall sales volume continued to grow amid COVID-19 on strong consumer products demand, especially in China.
  • Wilmar adopted a new segment classification for reporting its segment revenue and results to better reflect the Group’s core business effective this quarter. The new classification will be based on types of products, i.e.
    1. Food Products,
    2. Feed and Industrial Products,
    3. Plantation and Sugar Milling, and
    4. Others, as compared to agricultural commodities previously.

Strong consumer products demand likely to continue in 2Q

  • For Food Products, Wilmar saw strong growth of 34.8% for consumer products, mainly from consumer staples such as rice, flour and cooking oil, while medium pack and bulk products fell 20% on the back of lower demand from HORECA. However, with the resumption of work in China, we expect demand from HORECA to recover gradually.
  • Management noted that the demand for consumer products remain strong in Apr and May and are positive on double-digit sales volume growth in 2Q.
  • For Feed and Industrial Products, there was an overall improvement in crush margins and volume due to the recovery from the ASF outbreak in China. Sales volume for oilseeds and grains rose 17.3% to 4.3 million MT in 2Q, while tropical oils sales fell due to lower demand.

YKA IPO likely to benefit from Shenzhen ChiNext reforms

  • The proposed YKA IPO is expected to be approved in 2H20, facing a slight delay due to COVID-19. China announced IPO reforms for Shenzhen’s start-up board ChiNext. Under the reforms, valuation cap will be removed and IPO price will be decided by the market. We see this as positive for YKA’s IPO valuation and this remains a near-term catalyst for Wilmar's share price.
  • Management shared that the average P/E multiple for its peers’ listing on Shenzhen Stock Exchange has increased from 31x to 40x P/E amid COVID-19.
  • We continue to like Wilmar for the diversification of its products, strong penetration in China, which is poised to benefit from the recovery in China.
  • See Wilmar Share Price; Wilmar Target Price; Wilmar Analyst Reports; Wilmar Dividend History; Wilmar Announcements; Wilmar Latest News.
  • After adjustments, our fair values estimate for Wilmar decreases slightly from S$4.64 to S$4.54.

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2020-05-18
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