While RHB Bank Singapore, OCBC Investment Research and Citi Research have all kept their “buy” calls on agribusiness group, Wilmar International F34 , UOB Kay Hian has kept its "hold" call, after the group's earnings for the FY2023 ended Dec 31, 2023, came in 36.5% lower y-o-y at US$1.5 billion ($2.0 billion) compared to record earnings of $2.4 billion the year before.
This was largely due to weaker performance from its feed and industrial products segment, and its non-operating losses in 2HFY2023, which led earnings for the half-year period to decline by 21% y-o-y to US$973.9 million.
For the full-year, revenue also declined by 8.5% y-o-y to US$67.2 billion, due to the decrease of most commodity prices in 2HFY2023.
See more: Wilmar earnings down 36.5% y-o-y to US$1.5 bil in FY2023
Following this, the research team at RHB, Citi analyst, Lester Siew, and UOB analysts Leow Huey Chuen and Jacquelyn Yow Hui Li have all maintained their target prices of $4.10, $4.38 and $3.35 respectively, while the research team at OCBC have lowered their respective fair value to $4.22 from $4.42 previously.
The RHB research teamnotes that Wilmar’s FY2023 core profit was 12.7% above expectations, due to the stronger-than-expected 22% q-o-q sales volume growth of its sugar merchandising division in 4QFY2023, and the similar above-expected margin recovery of its food product division which “more than doubled” h-o-h in 2HFY2023.
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Despite this, RHB continues that the group’s results were “in-line” with the consensus forecast, writing: “While conditions remain challenging in China, Wilmar continues to see some bright spots in its sugar and food product divisions. This stock remains undervalued- it is trading at 9.6 times FY2024 price-to-earnings ratio (P/E) versus the China-listed peer range of 20 to 40 times.”
RHB also observes that the group’s dividend per share (DPS) of 11 cents was higher-than-expected, with its core net dividend payout ratio of 60% higher than the previous years’ 35% to 45%.
Despite Wilmar’s profit before tax (PBT) margin more than doubling h-o-h in 2HFY2023 to 1.5% due to improved operating conditions in China and normalised inventory, RHB remains wary. The group’s management expects the environment in China to remain challenging, but believes that the worst is over.
See also: Macquarie revises Singapore earnings growth for FY2024 to 7% from 3%
On the group’s feed and industrial division’s 3.7% y-o-y rise in sales volume in 4QFY2023, RHB notes that going forward, the tropical oils segment is likely to see continued compressed refining margins, due to a smaller tax differential between upstream and downstream products.
Although the oilseeds and grains unit booked a 7.3% q-o-q decline in sales volumes with weaker crushing margins, off the back of a decline in hog prices and animal feed demand, RHB understands that its margins have “improved from the lows: seen in 2023 and should remain positive in 2024, as commodity prices stabilise.
Meanwhile, Wilmar’s plantation and sugar milling division continued to outperform, with fresh fruit bunches (FFB) output rising 14% h-o-h and sugar milling volumes tripling h-o-h, resulting in the PBT margin rising exponentially to 20.9% in 2HFY2023 from 3.3% in 1HFY2023.
“Going forward, this is likely to decline due to softer sugar prices, although not too significantly- given the still relatively high sugar prices versus historical levels,” opines the research team atRHB.
“Post adjusting for FY2023 earnings, we tweak our FY2024 to FY2025 earnings down by 1% to 2% after trimming our margin assumptions for the feed and industrial division and widening margin assumptions for the plantation and sugar milling divisions,” says RHB.
Meanwhile, Citi's Siew writes: "Earnings momentum may pick up in subsequent quarters, potentially driven by a recovery in palm product refining margins from mid-FY2024."
"The cost environment in recent quarters has been aided by reduced feedstock prices as well as lower freight costs in general, and should continue to persist sequentially," adds Siew.
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On Wilmar's oil seeds dvision, the analyst notes that despite the pickup in the second half of FY2023, margins look "likely to be capped going forward given lagging animal feed demand."
He continues: "The latter segment’s plantation business should help offset the impact of crude palm oil's (CPO) near-term price strength, while FFB production is expected to range between flat to low single-digit growth in FY2024."
He also understands that the recent volatility in sugar prices has also provided decent trading opportunities for the company, whose trading gains should help offset the lower milling profitability.
"We normalise earnings due to the typical volatility of a trading company," concludes Siew.
On the other hand, UOB's Leow and Yow have a slightly more cautious view than their peers.
They write: "Despite the more positive guidance from its briefing vs its outlook statement, we maintain our hold recommendation as our current valuation already accounts for potential earnings growth. Additionally, we apply a more conservative valuation for our fair value due to the high volatility in earnings outlook stemming from global geopolitical uncertainties."
"However, after the analyst briefing, we maintain our view that Wilmar will still be able to deliver earnings growth in FY2024 despite a more challenging operation environment. The driving factors in FY2024 would be margin improvement, as most feedstock prices declined versus FY2023, especially compared to 1HFY2023, and positive volume growth with a guidance of 5% to 10% growth y-o-y," concludes Leow and Yow.
Likewise, the team of analysts at OCBC likewise note that Wilmar beat expectations for the FY2023.
They explain: “Despite weaker earnings in FY2023, a final dividend of 11 cents per share was declared (same as last year), bringing the total dividend for FY23 to 17 cents per share (flat y-o-y), ahead of our expectation of 16.5 cents.”
However, they are also cautious for the year ahead.
“Management observed some stability in performance in the first two months of 2024 as compared to 4QFY2023 but risks remain given uncertainties from macro and geopolitical situations,” notes the team.
They continue that while tropical oil margins could remain depressed due to weak demand and sugar milling margins could be affected by lower sugar prices, crushing margins are expected to be relatively steady in 1QFY2024.
“Despite the weak operating environment in China, management expects the sales volume of food products to grow 5% to 10% y-o-y in 2024. Wilmar will continue to focus on improving efficiencies of its operations. Management also explained that the reduction in capital expenditure in FY2024 is partly due to higher cost of funding,” adds the team of analysts.
As at 1.00 pm, shares in Wilmar International are trading at four cents or 1.18% down at $3.35 on Feb 26.
