• Maintain NEUTRAL, with new SOP-based SGD3.00 TP from SGD3.10, 3% downside. Wilmar International’s 9M24 results came in below expectations. While we expect earnings to see QoQ improvements in 4Q24, external factors like the upcoming US election risks could crimp share price recovery. Valuation will likely remain at a discount to its China-listed peers until earnings make a significant turnaround.

• 9M24 core profit accounted for 65% and 56% of our and consensus FY24 estimates. The main discrepancy came from lower margins for all divisions, despite stronger-than-expected sales volume recovery in 3Q24. 3Q24 core net profit saw a decrease QoQ and YoY (-25% and -36%).

• In 3Q24, food product sales volume grew 16.6% QoQ, driven by a strong recovery in consumer products (+34.9% QoQ) as well as medium pack and bulk (+11.4%). This brought 9M24 sales volume growth to 6.3% YoY, which is actually above our projected 2% growth for FY24F. Although there is no segmental disclosure on PBT for 3Q24, management noted that margin declined in 3Q24, likely coming from downtrading activities.

• Feed and industrial division saw QoQ volume rise 16.9% in 3Q24 – driven by sugar (+25.5%) and oilseeds and grains (+20.2%). This brought 9M24 sales volume to +8.9% YoY (up from -9.3% YoY in 1H24), again higher than our projected -5% YoY for FY24F. Despite the improvement in volume in the oilseeds and grains segment, profitability was dragged down by weaker profit in China as crushing margin fell. Going forward, with the recently announced stimulus package in China, demand could improve further, although this could be slightly offset by the higher import duty risks stemming from a potential deterioration in the US-China trade tensions.

• As for the tropical oils segment, refining margin weakened in 3Q24, but should improve in 4Q, taking into account the change in the export tax levy in Indonesia from mid-September and Malaysia from 1 November.

• The sugar trading and merchandising segment continued to see strong volume in 3Q but as sugar prices fell and milling activities were affected by the sugar strike, margin is likely to have been hit in 3Q24, leading to weaker profit contribution. Going forward, although the sugar strike in Australia has ended, a delayed milling programme could also keep margins relatively subdued, although 4Q24 should see an improvement QoQ.

• No disclosure for the plantation and sugar milling division, but this should have improved QoQ as CPO prices rose and FFB output increased seasonally.

• We cut FY24F-26F earnings by 9.1%, 3.9%, and 1.2% for, after ascribing lower margins for the feed and industrial division, although this was offset slightly after inputting our latest in-house FX assumptions.

• Maintain NEUTRAL, with lower SGD3.00 TP (including 4% ESG premium). We believe Wilmar will trade in line with regional valuations until earnings undergo a significant turnaround.

Source: RHB Securities Research - 4 Nov 2024