Wilmar International - Maybank Kim Eng 2021-04-30: Good Delivery. Better Operations, But Watch For Margin Risks

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WILMAR INTERNATIONAL LIMITED (SGX:F34)

Wilmar International - 1Q21 Good Delivery. Better Operations, But Watch For Margin Risks

• Wilmar International (SGX:F34) beat expectations in 1Q21 from mark-to-market reversals and improving operating conditions in China. Demand conditions rising in its other markets as vaccines progress should provide incremental volume uplift going forward. But timing of this is uncertain given the resurgence of COVID in India and Indonesia.
• Higher inputs costs may temper crushing margins going forward as well as its mid and downstream margins, we believe. We lower Wilmar's target price to S$6.21 to reflect this. With 17% upside, maintain BUY.

Wilmar reported strong 1Q21 performance

• A combination of mark-to-market loss reversals on hedges and gains on its investment portfolio contributed to the beat of Wilmar's 1Q21 performance. Improving Chinese consumption as activity ramps up from COVID-19 recovery saw a 11% q-o-q increase in Consumer Product volumes. The bulk segment was 15% q-o-q lower from a higher 4Q20 base, but +20% y-o-y pointing to improved consumption in the hotels and restaurants segment.
• Overall, net margins saw a 110bps y-o-y improvement to 3.2%, partially driven by higher palm oil and sugar prices.

Set for 2021 delivery, but watch margin risks

• We note a -23% q-o-q decline in Feed & Industrial Mainland opens up, we believe volume growth in these markets should broadly follow China. However, recurring COVID-19 outbreaks increases timing uncertainty, especially in Indonesia and India. Higher Products and Feed & Industrial Products to decline 5% y-o-y (from +2 to +3% before) as a result.

Lower Wilmar's target price to S$6.21.

• We believe Wilmar should continue to benefit from lowered 2021E-2022E PAT forecast by 3% each on account of tighter margins.
• Our blended DCF (WACC 5.3%, 1% terminal growth) and peer P/E (target P/E of 24x) target price for Wilmar have been lowered to S$6.21 from S$6.80. With 17% upside for the current Wilmar's share price, maintain BUY.
• See
  • Wilmar's Share Price,
  • Wilmar's Target Price,
  • Wilmar's Analyst Reports,
  • Wilmar's Dividend History,
  • Wilmar's Announcements

Thilan Wickramasinghe Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-04-30

SGX Stock Analyst Report BUY MAINTAIN BUY 6.21 DOWN 6.800