Wilmar reported a 5.7% YoY rise in revenue to US$11.2b but saw a 40.6% drop in net profit to US$203.3m in 1Q18 with lower contribution of non-operating items (impacted by marked-tomarket losses arising from investment securities), higher selling and distribution expenses (+16% YoY with increased advertising and promotion activities due to later Chinese Spring Festival in 2018) and administrative expenses (+8.5%).

Excluding one-off items such as FV adjustment on available-for-sale financial assets, 1Q18 core pre-tax profit was lower by 20% YoY, and accounted for 21% of our full year estimate, within expectations.

With respect to China’s import tariffs on US soybeans, the group mentioned that a prolonged standoff between China and the US would affect the utilization of its crushing plants, but this will be partially mitigated by better performance from its flour and rice businesses.

Its Tropical Oils segment will likely perform better in subsequent quarters as well. Pending an analyst briefing, we maintain our BUY rating but put out fair value estimate of S$3.51 under review.

Source: OCBC Research - 11 May 2018