Following Wilmar International F34 ’s 1QFY2024 results ended March which saw a 22.6% y-o-y lower net profit, analysts from RHB Bank Singapore and Citi Research are mixed on the stock.
RHB has downgraded its call from “buy” to “neutral” with a lower target price of $3.50, while Citi has kept its “buy” with a target price of $4.25.
RHB’s research team says that Wilmar’s 1QFY2024 results were below expectations. The first quarter’s core net profit accounted for 19%-20% of RHB and the street’s full-year estimates (-14% y-o-y, -24% q-o-q).
This was mainly due to a lower share of profits from its joint ventures and associates in China, and weaker-than-expected sales volumes from all three segments of the feed and industrial division.
The feed and industrial division saw volumes slip 12.5% q-o-q but rose 7% y-o-y in 1Q24, RHB notes. This rise was driven by the oilseeds & grains and sugar merchandising segments, but the q-o-q decline was due to a volume reduction in all three businesses, with the sugar merchandising segment falling 24% q-o-q while the tropical oil and oilseeds & grains segments fell 9% and 7.5% q-o-q.
The team at RHB notes that the tropical oil and oilseeds & grains units’ q-o-q declines were likely seasonal in nature, and the sugar merchandising division was affected by lower raw sugar prices and trading losses.
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“Going forward, management expects crushing margins to see more significant improvements from 2HFY2024 as hog prices rise — which would boost profitability in the oilseeds & grains business,” the analysts note. “As for the tropical oils segment, refining margins remain compressed, but management expects this to pick up in 2HFY2024 when palm output rises and domestic prices fall. For the sugar merchandising division, Wilmar expects margins to improve from 2QFY2024, as raw sugar prices have stabilised somewhat.”
However, RHB notes that this was offset by stronger-than-expected sales volumes at the food products unit. Food product sales volumes jumped 5% q-o-q and 14% y-o-y, driven by the consumer products segment and – to a smaller extent – the medium pack and bulk business.
They note that margins were also boosted by lower raw material prices during the quarter. Going forward, management believes margins should stabilise, as raw material costs have also stabilised, RHB adds.
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Meanwhile, RHB notes that no volume disclosures were given for the plantation and sugar milling divisions, but volumes are also likely to be weaker y-o-y due to seasonalities.
“Management expects crude palm oil (CPO) volume output to see a slight increase y-o-y, with growth being registered in 2H2024,” they add. “We bring down earnings by 11.7% - 14.7% after trimming volume growth assumptions for all three segments of the feed and industrial division.”
As such, RHB downgrades its call to “neutral” with a lower target price of $3.50.
On the other hand, Citi’s analyst Lester Siew cites improving outlook for feed and industrial products as key takeaways for maintaining his “buy” call.
Siew notes that Wilmar takes a more constructive tone heading into 2Q2024, particularly for its feed and industrial products segment. Taking Wilmar’s management’s direction, he expects the group’s tropical oils businesses to be better in 2Q2024, and its sugar merchandising business to stabilise and recover in the second quarter.
The analyst believes that Wilmar’s food products segment has an encouraging momentum in sales volume, and its plantation and sugar milling segment will pick up from May subsequent to the Hari Raya festivities and in tandem with the seasonal ramp-up in fresh fruit bunches output.
“On a separate note, the hearing for subsidiary Yihai Kerry’s (YKA) ongoing court case has been done and is awaiting court decision, which mgmt. expects would subsequently clear YKA of the alleged wrongdoings,” Siew notes.
Overall, the operational guidance by management points towards stronger q-o-q and y-o-y results in 2QFY2024, namely driven by an anticipated broad-based improvement across business divisions for its feed and industrial products segment, the analyst concludes.
As at 12.21pm, shares in Wilmar International are trading 1 cent lower, or 0.310% down at $3.22.
