Wilmar International - RHB Invest 2020-11-03: Expect Record Profit This Year; Reiterate BUY

WILMAR INTERNATIONAL LIMITED (SGX:F34)

Wilmar International - Expect Record Profit This Year; Reiterate BUY

Wilmar International (SGX:F34)’s 3Q20 results exceeded our expectations. Core PATMI came in at USD501m (+20% y-o-y), which brought 9M20 PATMI to USD1.1bn – meeting 83% of our previous forecast. With the strong set of numbers and positive outlook for 4Q, Wilmar is on track to generate a 10-year record-high profit.
Reiterate BUY on Wilmar, new S$5.85 target price from S$5.60, 45% upside with c.5% FY20F yield.

Outlook for next six months remains optimistic, with all three core segments expected to do well. As discussed in our report: Wilmar International - RHB Invest 2020-11-02: Tropical Oils To Benefit From Diversification; BUY, we expect the tropical oil segment to be at the helm, driven by higher CPO prices and healthy processing margins in the near term.
Wilmar's management also allayed our concerns on crushing margins, as Wilmar is able to pass on higher costs to end-consumers. Barring any extreme weather conditions, the group expects crushing margins to remain satisfactory in the near term.
Additionally, higher sugar prices and a premium for white sugar also benefitted Wilmar’s sugar milling & refining business.
With the optimistic outlook, Wilmar is set to generate a record profit this year. We raise our FY20-22 forecasts by 10%, 3%, and 1%, which – in turn – raises our SOP-based target price to S$5.85.

Following the listing of Yihai Kerry Arawana (YKA), Wilmar is to focus on growing its China market by going more into downstream consumer staple products. While the group continues to ramp up rice and flour production, it has already started planting new seeds in the condiments and noodles segments for future growth.
With YKA trading at c.35x FY21F P/E, Wilmar is also more likely to be open to M&As in the future, using YKA shares for equity financing of M&As and – in turn – accelerate growth for the group.
Moreover, management believes that Wilmar is undervalued, as YKA’s market cap of USD41bn is > 2x the group’s market cap, and cited possible participation in share buy-backs of Wilmar shares. The group is also exploring the listing of its other businesses to unlock more value for Wilmar.

Wilmar announced that it will declare a special dividend amounting to 6.5 Singapore cents/share (15% of the total IPO proceeds) in February along with its full-year result. While this is a tad disappointing vis-à-vis our previous projection of 10-15 cents/share, we expect the share price to remain supported. This is because of Wilmar’s strong earnings outlook and potential corporate actions, which could catalyse its share price upwards.
We note that Wilmar's share price has not re-rated upwards after the YKA IPO, suggesting that investors are unimpressed with the lack of fundamental improvement, despite the higher valuations implied by YKA’s market cap. This year, we expect Wilmar to break through its usual earnings range of USD1-1.3bn.
See Wilmar Share Price; Wilmar Target Price; Wilmar Analyst Reports; Wilmar Dividend History; Wilmar Announcements; Wilmar Latest News.
The ability to generate long-term sustainable growth in earnings should be key catalyst for Wilmar.
See also recent sector report: Plantation - RHB Invest 2020-11-02: V For Volatility; Still NEUTRAL On Sector.

Juliana Cai RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-11-03

SGX Stock Analyst Report BUY MAINTAIN BUY 5.80 UP 5.600