Wilmar International - UOB Kay Hian 2021-02-24: All Engines Are Ready To Charge Again In 2021

WILMAR INTERNATIONAL LIMITED (SGX:F34)

Wilmar International - All Engines Are Ready To Charge Again In 2021

We remain positive on Wilmar after the analysts’ briefing. We maintain our earnings growth expectation of ~11% y-o-y at US$1.66b. The performance is again likely to be driven by a higher sales volume with steady margins.
As most of the end products are consumer staples demand remains steady and should be able to mitigate the margin pressure from rising feedstock prices.
Wilmar's final & special dividend will go ex on 23 Apr 21.
Maintain BUY. Target price: S$6.40.

Refer to Wilmar International - UOB Kay Hian 2021-03-23: 2020 Strong Performance From All Segments for our updates on Wilmar's results.
We remain positive on Wilmar International (SGX:F34) after the analysts’ briefing. We maintain our earnings growth expectation of ~11% y-o-y at US$1.66b.
The key highlights from Wilmar's 2020 results briefing are:

The gains from the physical sales in 1H21 will be sufficient to offset the mark-to-market (MTM) losses that were reported in 4Q20. A higher effective tax rate for 2020 was due to the MTM losses reported in a lower tax rate regime. Thus the tax credit impact was marginal.

PBT margins and sales volume growth have remained positive in 2021. The main drivers for each sub-segment are as follows:
- Tropical oil (~30% of 2020 revenue) is expected to post better results on the back of better sales volume and profit margins. Sales volume will be supported by higher supply of feedstock (higher crude palm oil (CPO) production is expected for 2021F). With its large downstream operation in Indonesia it is expected to be the beneficiary of the revised exports levy, which lowers the levy rate for refined products vs the crude products that hit the upstream profits.
- Oilseeds & grains (~15% of revenue): Soybean crushing will continue to do well with animal feed demand improving. The hog population continues to grow and is expected to return to pre-African Swine Fever (ASF) level by Jul 21. Crushing margins will be better in 1Q21 with the reversal of hedging losses in 4Q20. Some of the gains will be realised only in 2Q21 when physical sales are completed.
- Sugar (~8% of revenue): The large white sugar premiums continue to give good refining margins. The white sugar premium is likely to remain with more supply of raw sugar for the production of ethanol.

Food products continue to leverage on resilient consumer spending and rising demand for premium products in China. The consumer pack continues to lead performance in this segment as the sales volume towards end-20 surpassed pre-COVID-19 levels.
While sales in the medium pack and bulk segments recovered from the lows in 1H20, they are yet to reach pre-COVID19 levels. The HoReCa sector may still need some time to fully recover. The revenue for restaurants and the catering sector recovered towards end-20 but the full-year revenue is still down 16.6% y-o-y.

Palm oil upstream is definitely a beneficiary of high CPO prices despite a high export levy and duty. Both the FFB yield and OER are expected to recover from the stress in 2019 and 2020, which will lead to low single-digit CPO production growth in 2021. Sugar milling will continue to enjoy better profit margins from a high sugar price.
Management has guided for 2021 capex of US$2b, which will be used mainly in China to expand its capacity and geographical reach.

We have fine-tuned our 2021-22 core net profit forecasts after taking into account the 2020 performance. There are marginal adjustments to the forecasts. We expect 2021/22 core net profits of US$1.66b (vs US$1.63b) and US$1.79b (vs US$1.75b) respectively.
We see 2023 core net profit of US$1.995b. 2023 could potentially see better growth with new capacity coming on stream in China, with mainly large integrated plants that could give better margins on the back of an integrated model, economies of scale and proximity to feedstocks/end markets.

Maintain BUY on Wilmar with a target price of S$6.40. Our target price is based on 2021F EPS and reflects a blended 26x 2021F P/E for China operations and blended 11x P/E for non-China operations.
See Wilmar Share Price; Wilmar Target Price; Wilmar Analyst Reports; Wilmar Dividend History; Wilmar Announcements; Wilmar Latest News.
The proposed final and special dividend of S$0.155 will go ex on 23 Apr 21. It will be payable on 6 May 21.

Leow Huey Chuen UOB Kay Hian Research | Jacquelyn Yow Hui Li UOB Kay Hian | https://research.uobkayhian.com/ 2021-02-24

SGX Stock Analyst Report BUY MAINTAIN BUY 6.400 SAME 6.400