• Wilmar International’s FY19 core net profit came in at 8% above our and consensus’ estimates, thanks to better-than-expected tropical oils earnings.
• FY19 dividend of S$0.125/share was also above our forecast of S$0.105.
• Wilmar International is pushing ahead with plans to list its China operations this year.
• Reiterate ADD, with an unchanged SOP-based Target Price of S$4.58.

Final Results and Dividends Were Above Expectations

• Wilmar International (SGX:F34)'s 4Q19 core net profit was above expectations, making up 108% of our and consensus’ full-year projections, thanks to better-than-expected tropical oils earnings (due to better merchandising and processing margins).
• A final dividend of S$0.095 was declared, bringing the full-year dividend to S$0.125, its highest since listing, which was above our S$0.10/share projection.

Tropical Oils Segment Was the Key Outperformer in FY19

• Wilmar International posted a 24% y-o-y improvement in its 4Q19 core net profit (excluding non-operating items) to US$410m, thanks to better performance across all key divisions, except JVs and associates. However, FY19 core net profit fell by 3% y-o-y due to weaker oilseeds and grains earnings (which were impacted by the African swine fever outbreak).
• The tropical oils division continued to outperform, with a 114%/49% y-o-y/qoq jump in 4Q19 PBT to US$287m, its best quarterly PBT since 4Q14, driven mainly by higher processing and merchandising profits and CPO prices. However, these were partly offset by the 44% y-o-y decline in associates and JV earnings in 4Q19 due to weaker earnings from Africa, China and Vietnam associates.

Still Going Ahead With China Listing Plan

• Wilmar International revealed that the COVID-19 outbreak has posed challenges to its operating environment, especially in China. The group does not expect this to have any major impact as its business is mainly involved in the food products industry, but it indicated that should the outbreak be prolonged, it could have a greater impact on its operations.
• Wilmar International is going ahead with its China listing in 2020, although it may be slightly delayed by the COVID-19 outbreak.
• The group expects the tropical oils division to do well in 2020, in view of the higher palm oil prices.

Reiterate ADD, With An Unchanged SOP-based Target Price

• We are cutting our earnings forecasts by 7-11% for FY20F-21F to reflect lower margins for its oilseeds and grains division, as we expect the COVID-19 outbreak to impact sales volumes and profit margins. However, our SOP-based Target Price of S$4.58 per share remains unchanged as most of the valuation metrics is based on P/BV.
• Despite potential short-term challenges for its China operations, we continue to favour Wilmar International for its attractive valuations and see the planned listing of its China operations as a key catalyst. The stock currently trades at a forward P/E of 16.3x and P/BV of 1.1x.
• Key risks to our view are lower-than-expected crush margin and delayed listing of its China business.

Source: CGS-CIMB Research - 20 Feb 2020