What is the news?

Wilmar’s 1Q13 results were in-line with expectations. Core net profits increased 52.6% yoy (but fell 21.8% qoq) to US$313.7mn, which was 24% of our forecast of US$1,324mn and 23% of consensus of US$1,368mn.

How do we view this?

All divisions showed strong volume, but revenue fell 2.6% yoy and 12.2% qoq) to US$10.2bn on lower ASP for palm and sugar products. This, however, does not seem to impact the bottom line as we see improved profitability in oilseeds & grains (recovery from losses in 1Q12), consumer products (higher volumes) and associates (higher contributions from China and India), partially offset by weaker performance in plantations (lower CPO prices).

Investment Actions?

We are positive on Wilmar’s long-term fundamentals. With 3 consecutive quarters of positive results, we think that margins for Wilmar’s oilseeds crushing business have normalized, although sales volume may be impacted by China’s bird flu in the near term. We are keeping our FY13- 15E earnings forecasts intact. Our target price remains at S$3.70 (Accumulate), based on blended PE (14.0x FY13E) and DCF valuations. Key risks to our target price includes untimely purchases of raw materials (oilseeds and/or palm oil), rising inflation resulting in unfavorable government policies, margins compression from increase competition, animal diseases affecting feedstock demand. We maintain our Accumulate rating. The stock is currently trading at just 13.2x our FY13E EPS forecast vs its historical mean of 14.2x.

Source: PhillipCapital Research - 9 May 2013