• Still BUY, with new SGD5.40 TP from SGD4.95, 39% upside and c.5% FY23F yield. 9M22 earnings surpassed expectations, at 102-104% of forecasts. Wilmar International remains severely undervalued – trading at 7.9x 2023F P/E, especially as its combined stake in Yihai-Kerry and Adani Wilmar is almost double the value of its own market capitalisation.

• Beat expectations. 9M22 earnings exceeded both our and consensus expectations, coming in at 102-104% of FY22F projections. If we were to exclude the gain on the sale of Adani Wilmar of USD175.6m, 9M22 earnings would have been at 93-95% of our and consensus earnings. The main discrepancy came from significant QoQ improvements in sales volumes of food products, and feed and industrial products in 3Q22 as well as better trading profit.

• In 3Q22, food product sales volume grew 3.2% YoY and 11.4% QoQ, bringing 9M22 sales volume to 21.5m tonnes (+3.6% YoY), despite COVID-19 restrictions in China. Management noted that while total consumer expenditure on basic food products has not declined in China, downtrading activities have begun, resulting in higher volume of lower margin products being sold. Nevertheless, revenue and profit for this division still rose QoQ in 3Q22, on the back of higher ASPs as well as lower raw material prices. Going forward, margins should remain relatively robust as the full impact of WIL’s ASP increases will only be felt in 4Q22, while commodity prices remain lower in 4Q22 vis-à-vis 2021.

• Feed and industrial division saw YoY volume declining 0.6% in 9M22, although on a QoQ basis, volume rose by 14.2%, driven by the tropical oils and sugar segments. Volume growth for these segments were likely driven by stronger sales from Indonesia (post-lifting of the export ban) as well as buoyant demand from India. However, we understand that the China crushing business returned to the red in 3Q22 (after one quarter of profitability in 2Q22), due to negative farming margins. However, pork prices have since risen, which, together with WIL’s adequate supply of soymeal purchased from government reserves, could translate to positive crushing margin in 4Q22.

• Improved FFB output likely helped to mitigate lower sugar milling volume and lower CPO prices in 3Q22. Going forward, margins may continue to be affected by lower CPO prices, although this should be offset somewhat by higher FY22F FFB output of 9-10% YoY in Indonesia. Management expects CPO prices to remain rangebound at +/-USD100/tonne.

• We raise our FY22F-24F by 8-14% after raising sales volumes for food products as well as for the feed and industrial division, while reducing our crushing margin slightly for FY22F.

• Still BUY, with a higher SOP-based TP of SGD5.40, which includes a 2% ESG premium, based on an ESG score of 3.1. We continue to believe WIL is undervalued, as its combined stakes in Yihai-Kerry and Adani Wilmar are almost double its current market cap.

Source: RHB Research - 1 Nov 2022