What is the news?

3Q12 core net profit dropped 26% yoy no thanks to businesses from Oilseeds & Grains as well as Plantations division. However, earnings from oilseeds & grains bounced back from losses in 3Q12 due to more timely purchases of raw materials. Palm & laurics delivered better margins following the revised Indonesian export tax structure in mid- September 2011. Margins for consumer products were higher due to lower feedstock cost.

How do we view this?

9M12 core net profit broadly meets our expectation, at 83% of our FY12 and 74% of consensus. We expect 4Q12 profits to be better yoy primarily because Wilmar’s margins for Palm & Lauris as well as Consumer Products segments remain strong. Margins for consumer products should also improve on the back of lower feedstock costs.

Investment Actions?

Overall, Wilmar’s performance will be weighed down by the Oilseeds & Grains division in the near-term as operating environment for the segment remains challenging. While we are positive on Palm & Laurics as well as the Consumer Products divisions, we fine-tune our FY12E/13E/14E earnings estimates by 9%/2%/2%, to realign our assumptions with what was achieved YTD. We upgrade our rating to Accumulate, and revise up the target price to S$3.47 (from S$3.29), based on our new blended PE (13.0x FY13E) and DCF valuations.

Source: Phillip Capital Research - 12 Nov 2012