Wilmar International 2H21 Preview - UOB Kay Hian 2022-01-19: On Track To Meet Our Earnings Estimate


Wilmar International - 2H21 Preview: On Track To Meet Our Earnings Estimate

  • Wilmar (SGX:F34) is scheduled to release 2H21 results on 22 Feb 22. We expect a core net profit of US$380m-400m for 4Q21 or US$956m-976m for 2H21, driven by strong performances from palm and sugar operations which offset the weaker contribution from China.
  • Wilmar's share price performance remains lacklustre despite another record earnings year, due to concerns over China’s weak economy and COVID-19 restrictions weighing on domestic consumption. Maintain BUY.

Wilmar International's 2H21 results preview.

  • Wilmar is scheduled to release its 4Q21 results on 22 Feb 22. It is on track to meet our earnings estimate of a full-year core net profit of US$1.7b (another record profit) implying y-o-y earnings growth of 11.3%. We are expecting a core net profit of US$380-400m for 4Q21 (vs 4Q20: US$349m, 3Q21: US$576m) or US$956-976m for 2H21 (2H20: US$851m, 1H21: US$732m).

Strong performance from plantation and sugar milling.

  • The plantation and sugar milling divison, which is the upstream operation for Wilmar, is expected to see significant earnings increase y-o-y and h-o-h in 2H22.
  • For 1H21, this division only contributed about 13% of 1H21 profit before tax (PBT), but this is expected to increase to 22-25% of 2H21 PBT on the back of strong selling prices. CPO and sugar price increased by 35% and 26% y-o-y respectively in 2021. 2021 is likely to best earnings year for this division since 2016.

Food products (35% of 1H21 PBT) still facing stiff margin pressure from high raw material costs.

  • Consumer products continued to be under sales being front-loaded into 4Q21.

Feed & industrial products (39% of 1H21 PBT) to get support from palm operations.

  • This division could see better contribution in 2H21 vs 2H20. Recall that the segment was impacted by mark-to-market losses on hedging derivatives in 4Q20, which were reversed in 1H21. Looking at the sub-divisions, tropical oils (palm downstream operations) should be able to compensate for the weakness from its oilseeds & grains. Oilseed & grains was weak in 2Q21 and 3Q21 due to poor margins and low volume, but crushing margins and crushed volume improved in 4Q21 with the recovery of pork prices and higher demand for animal feed.

Lower biodiesel allocation.

  • Wilmar is the world’s largest palm-base biodiesel producer with 2.6m tonnes. The Indonesian government plans to begin road tests for B40 in Feb 22.

Acknowledgement of its commitment to ESG.

  • Wilmar has strong environmental, social and governance (ESG) and it is one of the earliest companies to launch the No Deforestation, No Peat, No Exploitation (NDPE) Policy for palm supply chains in 2013, extending it to sugar achievements of Wilmar in 2021 include:
    • inclusion in the Dow Jones Sustainability Indices (DJSI) World Index for the Food, Beverage and Tobacco industry grouping for being among the top global companies with the best ESG performance,
    • inclusion in the FTSE4Good Developed Index and the FTSE4Good ASEAN 5, and
    • Wilmar was also ranked number one in the 2021 assessment by the Sustainable Palm Oil Transparency Toolkit (SPOTT), with a total score of over 91% for its transparency and public disclosure on its policies and efforts related to ESG matters.

Adani-Wilmar IPO listing slightly delayed.

  • Adani-Wilmar has started its IPO roadshow and but the listing has missed the earlier guided timeline (by Dec 21). The IPO proceeds will be mainly used to fund AWL’s expansion in India, in particular to expand their product range, which will eventually mirror the business model in China. We do not expect any special dividend from this listing. However, the easing of the capital needs from the holding company may lead to higher dividend payout in the future.

Maintain earnings estimates.

Leow Huey Chuen UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-01-19
SGX Stock Analyst Report BUY MAINTAIN BUY 6.000 SAME 6.000