Maybank Securities analyst Thilan Wickramasinghe has kept his “hold” call on Wilmar International F34 as he recommends investors “wait for better days”. The analyst is also unimpressed with the group’s limited dividend growth.
“Wilmar’s recent 1QFY2024 shows bright spots in consumer and wholesale recovery, especially in China. However, its industrial segments remain under pressure from tightening margins amidst falling commodity prices and weak demand,” he writes in his May 6 report. That said, Wilmar’s food products business should see an improvement in margins moving forward with the drop in commodity prices, he notes.
“Until there is better clarity on China’s growth trajectory, we think the prospects of turnaround could see headwinds. New businesses such as central kitchens show promise, but material earnings contribution is some way off,” adds Wickramasinghe.
After Wilmar’s quarterly results announcement, Wickramasinghe’s peers have been mixed on their outlook. RHB Bank Singapore downgraded its call to “neutral” from “buy” while Citi Research retained its “buy” call.
Wickramasinghe has lowered his target price to $3.44 from $3.99 after reducing his earnings per share (EPS) estimates for the FY2024 to FY2025 on lower commodity prices and margins. His discounted cash flow target price is derived from a weighted average cost of capital (WACC) of 5.9%, a terminal growth of 1% and peer P/E of 27 times, which was raised from peer revaluations.
UOB Kay Hian analysts Leow Huey Chuen and Jacquelyn Yow have kept their “hold” call but with an unchanged target price of $3.35.
See also: UOBKH calls Centurion Corp a stock for ‘growth-minded investors’
“Our valuation is based on FY2024 EPS and uses the sum-of-the-parts (SOTP) valuation by pegging [a] P/E of 18 times, 10 times and 11 times for food products, feeds & industrial products and plantations & sugar mills respectively,” they write in their May 7 report.
In the 2QFY2024, the analysts expect Wilmar’s earnings to improve on a q-o-q and y-o-y basis due to an enhanced operating margin and good sales volume across all segments. The forecast, based on insights from recent analyst briefings with Wilmar and its subsidiary, Yihai Kerry Arawana (YKA), marks a departure from previous years when the earnings in the 2Q traditionally see a q-o-q decline due to decreased sales volumes following the festive season.
To this end, Leow and Yow also believe YKA would see a continued improvement in its performance with stronger consumer sentiment, margin improvement and higher utilisation rate for soybean crushing.
Shares in Wilmar closed 4 cents lower or 1.24% down at $3.18 on May 7.
