• Wilmar International’s 1Q19 results were broadly in line with expectations.
• Strong tropical oils and sugar contribution offset weaker crush margins in 1Q.
• Wilmar International projects better 2Q19 crush margin.
• Maintain ADD and S$3.96 Target Price.

Wilmar's 1Q19 Results Broadly in Line With Expectations

• WILMAR INTERNATIONAL LIMITED (SGX:F34) posted a 37% y-o-y improvement in its 1Q19 core net profit (excluding non-operating items) to US$250m due to better performances from tropical oils and sugar divisions. However, core net profit fell 25% q-o-q due to weaker contribution from associates as well as oilseeds and grains segment.
• The 1Q19 results were broadly in line, making up 21% of our and 20% of consensus full-year projections.
• Over the past five years, 1Q core net profit has on average made up 21% of its full-year core net profit.
• See attached PDF report for Wilmar International's y-o-y and q-o-q results comparison.

Key Surprises in 1Q Vs. Our Expectations

• As expected, the oilseeds and grains segment as well as associates were negatively impacted by the African swine fever (ASF) and the sharp drop in Brazilian beans basis. This was guided by management in its 4Q18 analysts briefing.
• We were pleasantly surprised by strong showings from its tropical oils division (+81% y-o-y) in 1Q19 as better processing margin trumped lower palm products prices and FFB output.
• We were also positively surprised that the sugar division turned its first profit of US$1.7m for 1Q19, boosted by contributions from Shree Renuka Sugars. Prior to this, our records show that the sugar segments have posted losses in all its past 1Q results.

Containing the Negative Impact From Weak Crushing Margins

• The oilseeds and grains division posted a 47% y-o-y and 21% q-o-q drop in pretax profit to US$91.1m due to poor results from its crushing business. The performances would have been weaker if not for steps taken to mitigate the negative impact by reducing crushing activities and good management of its bean’s position.
• The negative impact from weaker crush was also partially offset by stronger contributions from its consumer products, rice and flour milling business.

Better Days in 2Q19 for Oilseeds Crushing Business?

• Wilmar International maintained its guidance that crushing margins will improve in 2Q19. On top of this, the group also indicated that it posted a reasonably good set of results in 1Q19, given the tough operating environment.

Maintain ADD Call on Plans to Unlock Value

• We are keeping our earnings forecasts and SOP-based target price of S$3.96 per share.
• We continue to favour Wilmar International for its attractive valuations and proposed plan to list its China operations. The stock currently trades at a forward P/E of 13.7x and P/BV of 0.98x.
• Key re-rating catalysts are the listing of its China operations, higher CPO prices and improving crush margins.
• Key risks to our view are lower-than-expected crush and refining margins, as well as lower CPO and sugar prices.

Source: CGS-CIMB Research - 10 May 2019