Wilmar International - Maybank Kim Eng 2021-08-13: Better Days Ahead?

WILMAR INTERNATIONAL LIMITED (SGX:F34)

Wilmar International - Better Days Ahead?

Wilmar International (SGX:F34)’s 1H21 was in-line with Street/MKE expectations. Higher commodity prices were a double-edge sword. These supported strong performance in upstream plantations and downstream refining. These segments should remain supported in 2H21, we believe.
On the other hand, consumer margins saw pressure from higher input costs. Weakness here as well as soybean crushing should ease in 2H21 from better ASPs, we believe.

Wilmar's share price has de-rated 10% since May and is at a 44% discount to its peer group. Potential value unlocking and improving margin outlook should be positive catalysts going forward. BUY.

Consumer Product volumes fell 30% y-o-y from a high base effect from last year’s pandemic lockdowns in China where customers rushed to stock-up for in-home dining. As more are choosing to dine-out, Medium Pack volumes (74% of segment vols) are increasing (+25% y-o-y). Delta-variant risks notwithstanding, wider re-opening should be supportive of overall volumes, we believe.
Nevertheless, 1H21 PBT/ton margins fell 20% y-o-y as higher commodity input costs began to bite. Wilmar International's management claims they are raising ASPs and these should flow through in 2H21, we believe the full pass-through of costs are unlikely given these are food staples.
We have lowered 2021-23E segment PBT/ton assumption by 5% each.

1H21 Plantations PBT/ton saw a strong rebound from losses year ago largely driven by higher CPO prices. Supply-demand metrics point to sustained price support in the near term. Feed & Industrial segment PBT/ton also saw a 30% y-o-y increase from supportive palm oil refining margins.
Oilseed crushing saw lower volumes (-11% y-o-y) from weak downstream demand due to a glut in pork availability. Management claims this is improving in 3Q21.

The IPO of its JV in India is consistent with Wilmar International’s strategy of lower 2021-23E profit after tax forecast for Wilmar International by 3-4% and our blended DCF (WACC 5.3%, 1% terminal growth) and peer P/E (target P/E of 25x) target price to S$6.03.
See
Wilmar's share price is now trading at mean P/E and a 44% discount to its peer group. Value unlocking and improving operating conditions should support better momentum going forward, we believe. Maintain BUY.

Thilan Wickramasinghe Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-08-13

SGX Stock Analyst Report BUY MAINTAIN BUY 6.03 DOWN 6.210