SINGAPORE (Aug 14): CIMB is maintaining its “add” rating on Wilmar International with unchanged target price of $4.52 as it forecasts 2H17 results to be stronger than 1H17 on stronger performances from all key segments.
Wilmar itself is optimistic of a better 2H17 performance from all its key divisions as most of the negative factors that affected its results in 1H are unlikely to be repeated in 2H.
The better 2H results will be driven by seasonally higher sales volumes from its tropical oils, oilseeds and grains divisions.
On top of this, the group has used up most of the high-priced inventory in the consumer pack division, and sugar division typically delivers stronger results in 2H17.
In addition, Wilmar is on track to list its China operations in Shanghai in 2019. The group is currently carrying out an internal restructuring of its China operations.
“Maintain Add due to its attractive valuations (P/BV of 0.98x) and plans to list China assets,” says analyst Ivy Ng Lee Fang in a Friday report.
“We expect the group to fetch better valuations for its assets in China via a separate listing as we believe Chinese investors will be able to better appreciate the group’s strong distribution channel and consumer products brands in cooking oils, flour and rice in China,” says Ng.
The research house expects the group to report US$768 million earnings in 2H17, which is higher than 1H17 net profit of US$350 million but 21% lower than 2H16 net profit of US$974 million.
Processing margin for palm oil should improve in 2H17 due to expectations of higher palm oil supply. However, it also revealed that Indonesia lowered the pricing formula from “CPO + US$125 per tonne” to “CPO + US$100 per tonne” in June.
To recap, 2Q earnings were hit by losses from sugar trading, lower palm processing margin and higher-priced inventories at consumer products division.
Wilmar posted a 94% q-o-q drop in 2Q17 core net profit to US$37 million due to weaker performance from tropical oils and losses from its sugar business. Tropical oils division was impacted by untimely purchase of raw materials and weaker processing margins. Sugar losses widened to US$107 million in 2Q17, as its trading division reported losses for the first time since it ventured into sugar. On top of this, consumer products earnings were impacted by higher-priced inventories in 2Q17.
At 3.26pm, shares in Wilmar are trading at $3.20.
