Analysts at CGS International (CGSI) and RHB Bank Singapore have kept their “add” and “neutral” calls on Wilmar International F34 with lowered their target prices of $3.63 and $3.10 respectively following its 1HFY2024 ended June results release.
Wilmar’s 1HFY2024 core net profit of US$603.3 million ($795.70 million) missed expectations at 44.8% and 38% of CGSI and RHB’s full year expectations.
The main reason for the lower-than-expected profits was a weaker-than-expected share of profits from joint ventures (JV) and associates, as well as softer-than-expected fresh fruit bunches (FFB) output, refining margins and sugar milling volumes, RHB analysts point out.
Nevertheless, CGSI’s Tay Wee Kuang notes that Wilmar observed sales volume and profit before tax (PBT) growth y-o-y across its food products as well as feed and industrial products, with a slight decline in both volume and PBT for the plantation and sugar milling segment.
“During its analyst briefing held on Aug 14, management shared that it expects palm plantation crop yield to improve in 2HFY2024 after a 7% decline in crop yield y-o-y in 1HFY2024.
“Furthermore, 2HFY2024 marks the sugarcane harvesting season in Australia, which should boost Wilmar’s plantation and sugar milling segment, translating to improved profitability for Wilmar. Management also said that the strikes across its Australian sugar mills have mostly abated,” he adds.
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The company also acknowledged that it will have to establish a free float of 25% in Adani-Wilmar, its listed associate, by February 2025 from the current 12%, with Wilmar and Adani each owning about 44% of the remaining stake.
Given Adani-Wilmar’s current market cap of about US$5.5 billion, Tay estimates Wilmar could realise a gain of US$258.3 million for 2HDY2024 or 1HDY2025, which translates to 5.52 cents per share, assuming both Wilmar and Adani pare down their stakes by an equal 6.5% each.
Meanwhile, RHB highlights that Wilmar expects crushing margins to widen more significantly from 2HFY2024 onwards, as hog and chicken prices rise. This would boost profitability in the oilseeds and grains segment. As for the tropical oils segment, refining margins remain compressed, given the current Domestic Market Obligation policy in Indonesia.
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To this end, RHB analysts have cut their earnings assumptions by 14%, 9% and 8% for FY2024, FY2025 and FY2026 respectively.
CGSI has cut its FY2024 to FY2026 estimates by 6.1% to 7.9%, given the weaker crop yield across Wilmar’s plantations as well as lower contribution from JV and associates.
Shares in Wilmar closed 1 cent higher or 0.3% up on Aug 16 at $3.13.
