Wilmar International - RHB Invest 2021-04-30: Proving The Integrated Model Works; BUY


Wilmar International - Proving The Integrated Model Works; BUY

  • Wilmar International (SGX:F34)’s 1Q21 core net profit of US$423.7m was in line with expectations, coming in at 25-27% of our and consensus’ FY21F projections. All core segments recorded growth in 1Q21, particularly the food products and sugar milling and merchandising businesses.
  • We believe Wilmar’s value proposition lies in its integrated business model, which enables it to better withstand volatility in commodity prices.

Food products segment saw 13% y-o-y increase in sales volumes

  • Wilmar's food products segment saw 13% y-o-y increase in sales volumes, driven by the medium pack and bulk volumes (+20% y-o-y) in China. Wilmar noted that 1Q21 sales volumes for its consumer products were above pre- COVID-19 levels. Management expects to grow the segment’s volumes by at least 10% pa, going forward. In terms of selling prices, management noted that it is unlikely to raise ASPs too quickly in the segment, in order to maintain market share.
  • The Chinese government has been checking with producers if prices will be raised, indicating the desire to keep inflationary pressures in check. Nevertheless, medium pack and bulk volume prices have been able to better reflect current high commodity prices.

Better margins overall in its feed & industrial products segment

  • Better margins overall in Wilmar's feed & industrial products segment, driven by strong sugar merchandising activities (sales volumes up 17% y-o-y), as well as better PO refining and oleochemical margins. However, this was partially offset by lower soybean crushing activities and margins.
  • Going forward, margins for the palm oil refining and oleochemical segments should remain upbeat, given the tax levy advantage over upstream players (currently at US$125.50/tonne) for refiners in May. However, crush margins for soybean are likely to trend down further in 2Q21, on the Government’s impetus to change the composition of hog feed in China – to reduce corn and soybean meal, and increase wheat and other proteins.

Plantation & sugar milling segment profit also higher y-o-y

  • Wilmar's plantation & sugar milling segment profit also higher y-o-y, supported by stronger 1Q21 commodity prices, and the capitalisation of maintenance costs during the sugar milling off-season. These maintenance costs will now be amortised over the sugar milling season instead, resulting in more stable profits.
  • Going forward, the plantation upstream division should benefit from higher CPO prices and higher CPO output of 5% in FY21.
  • As for sugar milling, given the rising raw sugar prices and white sugar premium, we expect to continue seeing stronger profits from this sub-division.

BUY with SOP-based S$6.45 target price

Singapore Research RHB Securities Research | https://www.rhbinvest.com.sg/ 2021-04-30
SGX Stock Analyst Report BUY MAINTAIN BUY 6.45 UP 5.800