• Robust FY17 results
• Full year div of 10 cts vs. 6.5 cts in FY16
• Price correction since last report

25% Increase in Net Profit in FY17

Wilmar reported a 3.3% YoY fall in revenue to US$11.5b and a 23.8% drop in net profit to US$427.5m in 4Q17, bringing full year net profit to US$1.2b, which is a 25.4% increase compared to FY16. This was better than ours and the street’s expectations, as we were forecasting US$1.09b while Bloomberg’s consensus was US$1.06b.

The good performance in Oilseeds & Grains and strong contributions from JVs and associates (mainly from China, India and Africa) were offset by weaker results in the Tropical Oils and Sugar businesses. More specifically, the oilseeds and grains segment delivered pre-tax profit of US$206.5m in 4Q17 vs. US$177.9m in 4Q16, aided by good crush margins and stronger sales.

Tropical Oils saw a 43% drop in pre-tax profit to US$104.9m due to lower processing margins downstream, lower plantation yield and CPO prices. Sugar saw a 69.5% fall in pre-tax profit to US$41.4m, mainly due to timing effect from the new sugar marketing program in Australia. Under this program, a certain proportion of sugar produced would only be sold in 1H18.

Increases Full Year Div to 10 Cts Vs. 6.5 Cts in FY16

Net gearing was 0.8x in FY17 compared to 0.7x in 3Q17. As of Dec 2017, Wilmar had total credit facilities of US$33.7b, of which 41% was unutilized, reflecting the ample financial cushion available for the firm. We like Wilmar’s integrated business model and well-diversified operations, and the group expects to continue to achieve sustained growth.

The internal restructuring of operations for the proposed listing of its China business is now largely completed. Should it be successfully executed, this should provide a catalyst for the stock.

Meanwhile, Wilmar has declared a final dividend of S$0.07/share, bringing full year dividends to S$0.10/share. This is 54% higher compared to S$0.065/share in FY16 and represents a dividend payout of about 39% for FY17.

We maintain our fair value estimate of S$3.51, based on 13.5x blended FY18/19 earnings.

Source: OCBC Research - 23 Feb 2018