WILMAR INTERNATIONAL LIMITED (SGX:F34)
Wilmar International - Decent Start To The Year; Still BUY
- Wilmar International’s 1Q22 performance is in line, despite facing headwinds from COVID-19 lockdowns in China, higher raw material prices and Indonesia’s CPO export ban. Despite all this, we believe Wilmar remains severely undervalued – it is trading at 10x 2022F P/E vs China-listed peers’ 26-39x, especially given the imminent future value-unlocking exercises.
- BUY, new S$5.10 target price from S$5.30, 15% upside.
Wilmar's 1Q22 earnings In line.
- Wilmar International (SGX:F34)’s 1Q22 core profit is in line with our and consensus expectations, at 25-27% of FY22F projections.
- In 1Q22, food products saw a 1.1% y-o-y and 7.7% q-o-q decline in sales volumes, due to the impact of lockdowns in China, which has affected demand for some higher-end products. With raw material prices rising due to the Russia-Ukraine war, Wilmar has not been able to raise prices at a similar rate, resulting in margin compression.
- Going forward, margins could remain under pressure, given the prevailing high raw material costs. However, its expansion and venture into China’s central kitchen business should help to alleviate some pressure.
- Feed and industrial division also saw q-o-q volumes declining 22% although on y-o-y basis, volumes rose marginally by 0.9%. Volume declines were seen across all subdivisions of tropical oils (due to Indonesia’s Domestic Market Obligation policy), oilseeds and grains (due to weaker demand for meal in China due to poor poultry and pig farming margins) and sugar (due to lockdowns in China).
- We understand that the China crushing business was loss-making in 1Q22, but this is expected to turn around in 2Q22, as farming margins have improved lately, while raw material prices have declined in the last week.
No volume disclosures were given for the plantation and sugar milling division.
- Indonesia’s export ban is expected to have a negative impact on earnings, but the impact is not expected to be significant, as management believes this ban to be temporary. In Indonesia, Wilmar sells less than half of its cooking oil products to the low-end market currently. Should the ban be extended, management will likely prioritise its own operations overseas by ensuring raw materials are secured from its Malaysian plantations first, before being exported elsewhere.
Still BUY, lower SOP-based Target Price to S$5.10 (from S$5.30).
- We trim FY22-24F earnings forecast for Wilmar by 3-4% after reducing our consumer pack, oilseeds and grains sales volumes, to account for the impact of the China lockdowns and weak demand from the poultry and swine farmers.
- Our target price for Wilmar includes a 2% ESG premium, based on an ESG score of 3.1. We believe the process of value-unlocking is still imminent, with the next round being the sale of another 6.5% of Adani Wilmar (likely sometime next year), which could reap it an additional S$960m, based on the latest price.
- See
Singapore Research
RHB Securities Research
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https://www.rhbinvest.com.sg/
2022-05-05
SGX Stock
Analyst Report
5.10
DOWN
5.30
