1Q14 results were significantly below market expectations with core net profit down 31.6% YoY to USD214.6m.

But most of the negative factors were due to seasonality, with the exception of CPO refining margin.

Maintain BUY with a lower TP of SGD3.94 on 8% cut in FY14E net profit. Our target P/E multiple remains at 15x.

What’s New

Wilmar’s 1Q14 results fell short of market expectations with core net profit sliding 31.6% YoY to USD214.6m. While both the oilseeds and grains and sugar divisions posted negative PBT as expected, palm oil refining margin surprised on the downside and contributions from associates were also lower than expected.

What’s Our View

We believe the poor performance of Wilmar’s soybean crushing and sugar segments was due to seasonality. For soybean crushing, 1Q14 margin was hit by a glut of soybean caused by the arrival of previously delayed soybean imports and low soymeal demand due to the outbreak of bird flu. But we note that soymeal price in China has rebounded by 10% after a 14% decline in 1Q, and we believe this would help lift soybean crushing margin in 2Q.

For sugar, we are not surprised by the negative PBT as the milling season only starts in 3Q. In fact, we expect sugar to be the biggest growth driver for Wilmar this year as prices bottom out. Lower-than- expected CPO refining margin could be due to structural issues as new processing capacity came on-stream in Indonesia. We therefore lower our PBT margin for the palm and laurics division to USD29/ton from USD35/ton. As a result, our FY14E-16E EPS forecasts fall by up to 8%.

We maintain that Wilmar stands to benefit from a structural recovery in soybean crushing margin and sugar price. Current valuation looks cheap. Maintain BUY but lower TP to SGD3.94 from SGD4.29, based on an unchanged 15x FY14E P/E.