Warrants Highlight

Wilmar Posts Devastating Result - 70% YoY

Wilmar posted another devastating earnings result yesterday. Its 2Q12 net profit fell 70% year-on-year (YoY) to US$117.1mn, compared to Bloomberg consensus estimates of $316.5mn. 3 months ago, when Wilmar announced a 34% YoY drop in its 1Q12 net profit, the stock dived 9.2%.

Macquarie has listed both Calls and Puts warrants over Wilmar. Investors who are expecting a rebound could leverage their views with calls, while bearish investors could consider buying puts.

This one’s going to hurt*
According to Macquarie Equities Research (MER), all of Wilmar’s divisions reported worse than expected results. In the last two quarters it was mainly the Oilseeds & Grains division that disappointed. It did so again, with another loss. MER estimates that the China soybean crushing industry’s capacity utilization runs at 50-55% today, so it will take some time before this situation improves materially.

The far bigger surprise was that Wilmar’s traditionally stronger Palm & Laurics division (CPO refining) fell short as well. Sequentially, margins have dropped sharply. Management will have to explain if this was driven by its Indonesian or Malaysian / Rest of the World operations as the press release is vague.

CPO upstream also failed to deliver the strong second quarter seasonality seen in the past. Some upstream peers have deferred sales into 2H to take advantage of lower Indonesian export taxes. Weak production and higher costs seem to have been more at play in Wilmar’s case. 2Q12’s -10% CPO production decline was attributed to poor weather and “low crop trends”. MER thinks that this will surely engender discussion at the analyst meeting.

The consumer products division could not maintain its strong start to the year, for which there was insufficient explanation in Wilmar’s release. Sugar did worse than expected due to wet weather and higher maintenance costs.

The outlook statement stresses Wilmar’s sound long term business model, but indicates that the near term operating environment remains challenging.

Earnings and target price revision: MER currently has a neutral recommendation on Wilmar with a target price of S$3.33. However, MER sees high teens percentage pressure on consensus EPS post 2Q12. MRE plans to review its estimates post the lunchtime analyst briefing on 15 August.

Catalyst: Back to back Chinese crushing margins (using US origin soybeans) have been rising. But MER think the market will look past this, given Wilmar’s profit challenges on the ground in China. Wilmar next reports in November.

Action and recommendation: Near term risk is clearly to the downside as consensus estimate cuts come through. A renewed upgrade cycle will be required for the market to revisit Wilmar, MER thinks. It is difficult to see when such a process would start.

On a separate note, Macquarie is pleased to list the following new warrants this morning:

Singapore Market Wrap

Asian indices rallied on German's economic growth

Major Asian added gains as the Bank of Japan minutes showed that policy makers are considering moves to boost the economy and the STI added 0.8% day-on-day to close at 3087.84, while the HSI added 1.1% to close at 20291.68.

In addition, both the HSI and the STI saw a rally in the afternoon when the German economic growth was better than expected with GDP increasing by 0.3% as compared to the previous quarter. This beats the Bloomberg survey which only expected an increase of 0.2%. The statistic office mentioned in their report that expansion this quarter was driven by consumption and net exports. Company investments, especially in plant and machinery fell this quarter compared to the previous.

Call STI 2950MBeCW120831 (QE8W) exercise level 2,950.*
Put STI 2850MBePW120831 (QE9W) exercise level 2,850.*

HSI20200MBeCW120830 (QS5W) exercise level 20,200.*
HSI19800MBePW120830 (QS7W) exercise level 19,800.*

STX OSV Holdings announces 2Q earnings
STX OSV announced their 1H2012 results, generating revenue of NOK6148mil from Jan to June. This is an increase of 4% compared to same period from the previous year, and reflects that the company has generally stable operations in a favourable business environment.

CEO, Mr Roy Reite said that the company will "continue working towards cohesively strengthening the efficiency and stability of their operations across the network". In this quarter alone, the company secured eight new vessels, amounting to NOK4986mil.

STX OSV closed at $1.65, up 6.5% dod.

Call warrant STXOSV MB eCW121203 (QR8W) exercise price $1.50.*

Noble- leads STI
Asia's biggest listed commodity supplier, Noble led the STI in its rally yesterday. Their strong performance can be attributed to their record revenue. Metals and energy contributed most to this. Revenue advanced 42% at its energy unit and 28% in its metal business.

Noble had a sharp rally in the afternoon, closing at $1.25, up 12.1% dod.

Call warrant NobleGrpMBeCW121105 (QF8W) exercise price $1.20.*
Put warrant NobleGrpMBePW130103 (QZ6W) exercise price $1.10.*

Overnight Market Wrap

Retail sales failed to push US markets higher

Europe had a good session yesterday, with the Dax adding 0.9% dod while the Euro Stoxx 50 added 0.7% dod. The increase came as no surprise since both France and Germany posted GDP results that were better than expected. German's GDP expanded 0.3% in 2Q, compared to a 0.2% predicted in the Bloomberg survey. France's GDP remained unchanged in 2Q, compared to a decline of 0.1% predicted in the Bloomberg survey.

The US announced retail sales which increased more than the Bloomberg survey yesterday. Retail sales came in at 0.8% far exceeding the Bloomberg survey of 0.3%. Investors expected the increase since jobless claims decreased and hiring in the US has picked up. The US indices paled in comparison to the Europe indices with the S&P ending at 1403.93, flat for the day.

Overnight Markets

Indices	Last	Change
STI	3087.84	0.8%
HSI	20291.70	1.1%
DJIA	13172.10	0.0%
S&P 500	1403.93	-0.0%
Nasdaq	3016.98	-0.2%
China A50	7430.89	-0.0%

Corporate News

Corporate Announcements

Wilmar 2Q12 net profit fell 70% year-on-year to US$117.1mn.

IndoAgri 2Q12 net profit fell 17.9% year-on-year to IDR 253.6bn.

Sembcorp Marine secured a US$135mn rig order from Diamond Offshore.

Results announcements:
Tue 28 Aug: Olam 4Q12

Ex-dividend dates:
Wed 15 Aug: DBS ($0.28), SembMarine ($0.05)
Wed 21 Aug: STX OSV ($0.13)
Wed 22 Aug: Wilmar ($0.02)
Thu 30 Aug: Sakari ($0.02), UOB ($0.20)
Wed 26 Sep: SGX ($0.15)