• 1Q14 core net profit of US$214.6mn (-31.6% YoY, -39.2% QoQ) were below.
• Plantations performed better-than-expected, but offset by unexpected loss in Oilseeds & grains.
• Maintain "Accumulate” with new TP of S$3.61.

What happened?

Wilmar’s 1Q14 core net profit (excluding non-operating items) came in at US$214.6mn (-31.6?% YoY, -39.2% QoQ). 1Q14 below expectations as it contributes 14%/15% of PSR/consensus full year forecasts (1Q13 and 1Q12 contributed 24% and 18% of FY13 and FY12 core net profit respectively).

How we view this

The main driver of Wilmar’s earnings miss was its Chinese soybean crushing business. Excessive import of soybeans as well as lower demand for soybean meal because of bird flu and slower economy had driven down product prices in China; while tighter CPO supply and increased industry capacity had compressed refining margin in 1Q14. However, this was partially offset by better performance in Plantations due to improved production yields, lower fertilizer prices and IDR depreciation.

We expect palm refining margins in FY14 to ease due to the anticipated 5% increase in Indonesia’s palm refining capacity (from 30.7mn MT to 45mn MT by end-2014), while partially supported by higher contributions from value-added downstream products (like oleochemicals, specialty fats and biodiesel) which yield higher margins. For Oilseeds and gains, we expect crush margins to remain volatile in FY14 due to weaker meal demand (no thanks to bird flu concerns) and tighter US soybean supply (higher feedstock cost).

Investment Action

We revise down our FY14E-16E net earnings forecasts by 4-13% to factor in lower Palm & laurics and Oilseeds & grains estimates. Our blended PE (14.0x FY14E) and DCF driven price target lowers from S$3.88 to S$3.61. With 10% upside to our revised target, we reiterate our Accumulate rating. We see near-term downside risk as consensus estimates cuts come through. Wilmar is currently trading slightly above -1 S.D. at 12.8x forward PE. Key downside risks include (1) untimely purchases of raw materials (oilseeds and/or palm oil), animal diseases affecting feedstock demand.

Source: Phillip Securities Research - 10 May 2014