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Maintain NEUTRAL, TP drops to SGD3.10 from SGD3.30, 0.3% upside. Wilmar’s 1H24 results came in below expectations. While we expect some improvements in 2H24, this will be offset by the still-weak economic environment in China. Its valuation should stay at a discount to its China- listed peers for the time being, until earnings turn around significantly.
1H24 core net profit accounted for 38% and 42% of our and Street full-year estimates, as 2Q24 saw a 15% QoQ decline in net profit. The main reason for the lower-than-expected profits was a weaker-than-expected share of profits from JVs and associates, as well as softer-than-expected FFB output, refining margins and sugar milling volumes.
In 1H24, food product PBT rose 77% YoY, as sales volumes rose 7.3% QoQ but fell 9% QoQ in 2Q24. The YoY rise came from both the consumer products (+4% YoY) and the medium pack and bulk segment (+8.4% YoY). Margins strengthened in 1H24 to 1.1% (from 0.6% in 1H23, and vs 1.5% in 2H23). Going forward, margins should continue to stabilise as raw material costs have also levelled out.
The feed and industrial division’s PBT surged by 34% YoY, as sales volumes rose 8.3% YoY in 1H24, while 2Q24 sales volumes grw 6.7% QoQ. The QoQ recovery came mainly from the oilseeds and grains (+19%) unit, which saw improving crushing volumes. The YoY recovery was driven by volume growth in all three segments, with sugar merchandising up 22% YoY, tropical oils up 5.4%, and oilseeds & grains up 4.6%. Going forward, management expects crushing margins to widen more significantly from 2H24 onwards, as hog and chicken prices rise – which would boost profitability in the oilseeds & grains segment. As for the tropical oils segment, refining margins remain compressed, given the current Domestic Market Obligation policy in Indonesia, and as such, we trim our margin assumptions accordingly.
Plantation & sugar milling unit’s PBT fell 14% YoY onlower FFB output (6.4% YoY) and sugar milling volumes (13.7% YoY). 1H24 FFB output was affected by El Nino and, although the weather has normalised, Wilmar is lowering its FY24 FFB growth guidance to close to -5% YoY (from flattish). We trim FY24F FFB output growth accordingly to -5% YoY and narrow our assumption on its refining margins. Given the continued weak sugar prices, we have also cut our sugar milling margin and volume assumptions.
We cut earnings by 14%, 9% and 8% for FY24-26F after trimming assumptions on JV and associate profits, FFB output, refining margins, and sugar milling volumes and margins.
Our TP of SGD3.10 includes a 4% ESG premium. We believe Wilmar will trade in line with regional valuations, until earnings undergo a significant turnaround.
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....