Wilmar International - CGS-CIMB Research 2021-02-23: Special Dividends Make Up For Weaker 4Q


Wilmar International - Special Dividends Make Up For Weaker 4Q

  • Wilmar’s final results were 5% below our forecast due to higher taxes.
  • Positive on strong final and special dividend of S$0.155 (dividend yield of 2.8%).
  • The value of its stake in Yihai Kerry Arawana (YKA) is worth 3.1x Wilmar’s current market cap.
  • Reiterate ADD, with a higher SOP-based target price of S$6.15.

Wilmar's 4Q20 core net profit 5% below our estimate, 3% above consensus

  • Wilmar International (SGX:F34) posted a 30% q-o-q decline in its 4Q20 core net profit to US$349m, due mainly to marked-to-market losses on hedging derivatives incurred by its feed and industrial products, higher tax expenses and non-controlling interests (due to 10% dilution of Wilmar’s interests in Yihai Kerry Arawana (YKA) following its listing in Oct 2020). This brings its FY20 core net profit to US$1.49bn (+18% y-o-y), 5% below our expectation but 3% above consensus.
  • The weaker-than-expected earnings were due mainly to a higher-than-expected effective tax rate as well as minority interests. Reported net profit grew at a faster rate of 21% y-o-y due to non-operating gains from investment activities.
  • As expected, Wilmar announced a special dividend of S$0.065 per share (approximately 15% of the total IPO proceeds for YKA of US$2.06bn) and a final dividend of S$0.09 per share. This brings Wilmar's total dividend for FY20 to S$0.195 per share or a dividend payout of 62%.

Key highlights from Wilmar's 2HFY20 and FY20 results

  • Wilmar's 2HFY20 core net profit grew 3% y-o-y to US$850.8m due to better performances from all segments, except feed and industrial (-5% y-o-y). The food products segment (+16% y-o-y in 2H20) remained the largest contributor while the plantation and sugar segment tripled its pretax profit to US$189m in 2H20 due to higher palm and sugar prices.
  • Wilmar highlighted that 4Q earnings would have been stronger if not for marked-to-market hedging derivatives, which will reverse in the subsequent quarters.
  • For the FY20 full year, Wilmar posted core net profit of US$1,486m (+18.3% y-o-y), its best net profit achievement since 2009, driven by better performances from all its key segments.
  • Wilmar posted a strong 22% y-o-y increase in sales volume for its consumer products to 9.4m tonnes in FY20 and witnessed a sharp recovery in sales for medium pack and bulk food products in 2H20 due to the easing of lockdown restrictions. However, the tropical oils division’s sales volumes dipped 6% y-o-y in 2H20 due to weaker palm oil productions.

Reiterate ADD with higher Target price of S$6.15 per share

  • We raise our Wilmar's net profit forecasts by 2-3% for FY21-22F to reflect higher CPO price assumptions and better processing margins. We raise our SOP-based target price to S$6.15 from S$5.45 to reflect a higher P/BV of 2x for its consumer products division.
  • We keep our ADD call for Wilmar as the stock is undervalued and offers a cheaper and more liquid entry into its 90%-owned Yihai Kerry Arawana (YKA, 300999:SZSE). Wilmar’s 90% stake in YKA is worth US$80bn, based on the last closing price, or 3.1x Wilmar’s current market cap.
  • See Wilmar Share Price; Wilmar Target Price; Wilmar Analyst Reports; Wilmar Dividend History; Wilmar Announcements; Wilmar Latest News.
  • Key re-rating catalysts are growing interest in Wilmar as a cheaper and more liquid entry into YKA, plans to unlock value and better-than-expected dividend payout.
  • Key risks to our call are share overhang from placement and inability to pass on higher commodity prices to consumers.

Continue to read the update post Wilmar's analyst briefing: Wilmar International - CGS-CIMB Research 2021-02-24: Searching For The Next Catalyst.

Ivy NG Lee Fang CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-02-23
SGX Stock Analyst Report ADD MAINTAIN ADD 6.15 UP 5.450