3Q18 earnings : Above our and consensus forecast.

• Wilmar's 3Q18 revenues and NPAT were well ahead of expectations. Revenues of US$11.6bn (+4% y-o-y, +7% q-o-q) and core net profit of US$434.7m were well ahead of expectations (+35% y-o-y, +24% q-o-q). Wilmar’s 9M18 core profit now forms c.84% of market’s full year consensus.

• Profit before tax from Tropical Oils segment was US$155.5m (+93% y-o-y, constant q-o-q) on better manufacturing and mechandising and downstream businesses. Downstream margins continued to be boosted by higher palm oil production volumes.

• As seen in 2Q18, Wilmar continues to benefit from higher volume and good crush margins amid strong y-o-y sales volumes across Oilseeds & Grains Manufacturing and Consumer Products. Profit before tax improved to US$296.9m (+17% y-o-y, +2% q-o-q).

• Profit before tax at US$76.4m (+2% y-o-y, n/a q-o-q) rode on the back of strong performance in merchandising business, offset by losses in Wilmar’s new India sugar acquisition.

• “Others” segment had a loss of US$7.4mm attributed to weaker Fertiliser business and lower investment income while JVs and associates’ contribution of US$66.4m improved largely on Wilmar’s investments in Africa, China, Europe, Vietnam (+30% y-o-y, +34% q-o-q).

• Ending cash & cash equivalents were lower at US$3.2bn (2Q18: US$3.5bn) while gross debts were relatively stable at US$23.9bn (US$23.4bn) due to consolidation of Shree Renuka Sugars as a subsidiary during the quarter. This translates into reported net gearing ratio of 0.81x (FY17: 0.79x).
• Including liquid working capital, net gearing ratio would have been 0.38x (FY17: 0.26x); 2Q18 capex (excluding associates) was higher at US$956m (9M17: US$611m).

•  We raised our FY18 earnings forecast by 8% to account for the better than expected processing margin performance in both oilseeds and grain division, as well as the tropical oils. Improving processing plant efficiencies helped Wilmar to achieve sound margins.
• We are keeping our FY19 earnings forecast for now as we prefer to monitor the developments over trade wars and prices of commodities next year. We forecast Wilmar’s earnings in FY19 to reach US$1.1bn mainly on steady volumes across the segment.
• We assume margins will stay healthy at around the 2018 level, on steady commodities price performance.

• We maintain our BUY rating with unchanged Target Price of S$3.59, which implies FY19 PE of 15.0x, in line with its 5-year average PE multiple. We have left our FY19F earnings unchanged hence our target price maintained as we had already rolled forward our DCF valuation to FY19 in our last report.
• We like Wilmar for its robust earnings performance even amid current uncertain situation arising from the trade wars which could affect commodity prices across the board. Wilmar should be able to withstand the trade war.
• Improving efficiencies from processing plant also will help Wilmar to maintain its profitability level during various commodity price cycle trends.