• WILMAR INTERNATIONAL LIMITED (SGX:F34) remains our Top Pick for the plantation sector. Stay BUY with new Target Price of SGD3.94 from SGD3.80, 13% upside plus 3% yield.
• Post analyst briefing, we are more upbeat on Wilmar's 2Q19 results. We believe the tropical oils should remain strong on low feedstock costs, while oilseeds & grains should improve, as soybean crush margins turn positive in the current quarter.

Crush Margin Turns Positive

• According to management, soybean crush turns positive this quarter, as utilisation rate increases to 80% from 50% in 1Q19. This is largely due to consolidation in the crushing industry following the outbreak of African swine fever and improving demand due to cheap soybean meal prices.
• On top of that, Wilmar is likely to benefit from lower input costs, as Brazilian soybean prices have dropped 5% q-o-q and 18% y-o-y. The widening of Brazilian bean basis might also give a boost to Wilmar’s hedging gains.

Tropical Downstream Margins as Beneficiary of Low CPO Prices

• For 2Q19, CPO prices have fallen 4% q-o-q and 18% y-o-y. The low price environment for CPO and weakening of MYR would continue to support the processing margins for tropical oils for this quarter.
• We believe Wilmar's 3Q processing margins would still remain strong as well since the group is likely to stock up on the cheap inventories.

New CPO and PK Price Assumptions

• We have revised in-house CPO and PK price assumptions to MYR2,200, MYR2,400 and MYR2,500 per MT and MYR1,300, MYR1,550, MYR1,550 for FY19F-21F. This has tweaked our FY19F-21F earnings by -2% to 2%.
• We also roll over our valuation base year to FY20F, resulting in a higher SOP-derived Target Price of SGD3.94.

IPO Still on Track

• Wilmar's China IPO remains a key catalyst to share price. The group is likely to submit its prospectus to the China Securities Regulatory Commission in July. Following which, management believes the authorities would take 2-4 months to approve.
• Management expects the IPO of its China subsidiary to be completed in 2H19.

Source: RHB Invest Research - 16 May 2019