RHB Bank Singapore has maintained its "buy" call on Wilmar International as it believes the stock remains "undervalued".
However, along with a slightly reduced earnings assumption, the target price has been trimmed from $4.65 to $4.40.
The agri-food giant's recent 1QFY2023 earnings were "slightly below" RHB's expectations, at just 20% of its earnings projected for the current FY2023, because of lower palm oil prices and processing margins.
A slower-than-expected pickup in demand in China, despite the lockdowns having ended, contributed to the missed expectations too.
“In addition, with commodity prices continuing to trend southwards, customers are adopting a wait-and-see attitude before restocking while expecting average selling prices to come off. We have reduced our medium pack and bulk volume assumptions accordingly,” says RHB.
RHB expects the current 2QFY2023 to be better in terms of sales volumes for food products and crushing, while margins could strengthen in the second half of the year once Wilmar runs down its high-priced inventory.
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RHB points out that the combined value of Wilmar’s China-listed subsidiary Yihai-Kerry, plus India-based joint venture, Adani Wilmar, is almost double that of Wilmar’s own market cap.
Wilmar trades at just 10.5x FY2023 earnings, versus the 20-40x that its China-listed peers can fetch.
CGS-CIMB analysts, in their May 3 note, have similarly cut their target price from $4.82 to $4.63.
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CGS-CIMB's Tay Wee Kuang and Lim Siew Khee have cut their earnings estimate for the current and coming FY2023 and FY2024 by 9.7% and 5.1% respectively, citing margin pressure on plantations and the feed and industrial segment.
In addition, they have also taken into account the slower-than-expected recovery in China’s economy following reopening as reflected in the lower share price of its subsidiary Yihai Kerry
Their revised target price implies FY2024 earnings estimate of 11.7x slightly lower than its 10-year historical average of 12.2x.
A re-rating catalyst is a recovery in key commodity prices; downside risks include an economic downturn and persistently weak refining and crushing margins, note Tay and Lim.
UOB Kay Hian offers a somewhat take from the other brokerages.
It has maintained its “buy” call and $5.50 target price on the stock, after leaving the 1QFY2023 result briefing with a few “positive surprises” with the management “more upbeat than our expectation”.
Citing the guidance provided by Wilmar’s management, UOB Kay Hian believes that the current 2QFY2023 may turn out to be another “exceptional quarter” where core earnings will at least match the US$382 million reported for the preceding 1QFY2023.
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UOB Kay Hian, in its May 3 note, has kept its earnings forecast for the current FY2023 to FY2025 at US$1.9 billion, US$2.2 billion and US$2.4 billion respectively.
The $5.50 target price is derived from a sum of the parts valuation methodology that is pegged to 17x FY2023 earnings for Wilmar’s China operations, and a blended 11x multiple for the non-China businesses.
“Despite lower yoy earnings expectations for 2023, we still recommend ‘buy’ for Wilmar as the strong recovery of its China operations will compensate the weakness in tropical oils,” says UOB Kay Hian.
