• Wilmar International (SGX:F34)’s 1Q21 core net profit came in line with expectations at 27% of our and consensus’s full-year estimates. Feed and industrial, plantation and sugar milling were 1Q21 earnings drivers.
• Wilmar is cautiously optimistic on its performance for the rest of the year. Reiterate ADD due to its attractive valuation vis-à-vis YKA.

Key Drivers Behind Wilmar's Record 1Q Earnings in 2021

• In 1Q21, Wilmar announced its highest 1Q net profit since listing. The group posted a 38% y-o-y rise in its 1Q21 core net profit to US$424m, which it attributed to strong growth in revenue and profits from all its core segments. This was further boosted by a reversal of mark-to-market losses on hedging derivatives posted in 4Q20.
• Wilmar's 1Q21 core net profit was broadly in line, making up 27% of our and consensus full-year projections as we project weaker 2Q earnings.
• Over the past ten years, 1Q core net profit has on average made up 21% of Wilmar's full-year core net profit. 1Q21 reported net profit grew at a faster rate of 101% due to gains from Wilmar’s investment securities vs losses in 1Q20.
• Q-o-q, net profit rose 21%, driven by higher commodities prices and reversal of hedging losses.

Highlights of Wilmar's Results

• Wilmar revealed that its feed and industrial segment (tropical oils, oilseeds and grains and sugar) posted good manufacturing margins. We suspect this could be driven by a more favourable export levy structure for Indonesia downstream producers in 4Q20, reversal of marked-to market losses on hedging derivatives relating to its soybean crushing business and better sugar refining margins and volumes.
• Wilmar also recorded stronger plantation and sugar milling profit due to higher CPO and sugar prices as well as capitalisation of maintenance costs during the sugar milling off-season (which will be amortised over the sugar milling season).
• Meanwhile, contributions from Wilmar's associates and joint ventures were favourable.
• We also noted a sharp rise in sales volumes for its consumer products for medium pack and bulk (+19.8% y-o-y to 4.5m tonnes) as demand recovered from the impact of the COVID-19 pandemic in China in 1Q20. This segment makes up 64% of the total food products sales volumes.

Wilmar Is Cautiously Optimistic on Performance for Rest of 2021

• Wilmar revealed that the sustained high palm oil price will benefit its plantation business but is likely to impact its manufacturing margins. Its feed and industrial products segment is likely to be weaker due to lower crush margins. However, the higher sugar prices will benefit its sugar milling business.
• Wilmar also indicated that its operations in India and Myanmar were not affected by recent developments and it is cautiously optimistic that the group will perform satisfactorily for the rest of the year.

Reiterate ADD, With An Unchanged SOP-based Target Price of S$6.15

• We retain our SOP-based target price of S$6.15 per share and ADD rating for Wilmar.
• Key catalysts are better earnings and initiatives to unlock value.
• Key risks are lower crush margins and a prolonged COVID-19 impact on economic activities and demand for commodities.

Source: CGS-CIMB Research - 30 Apr 2021