Sequential Operating Improvements Underway

• Wilmar International (SGX:F34)’s 1H21 was in-line with Street/MKE expectations. Higher commodity prices were a double-edge sword. These supported strong performance in upstream plantations and downstream refining. These segments should remain supported in 2H21, we believe.
• On the other hand, consumer margins saw pressure from higher input costs. Weakness here as well as soybean crushing should ease in 2H21 from better ASPs, we believe.
• Wilmar's share price has de-rated 10% since May and is at a 44% discount to its peer group. Potential value unlocking and improving margin outlook should be positive catalysts going forward. BUY.

Food Products Tight Margins

• Consumer Product volumes fell 30% y-o-y from a high base effect from last year’s pandemic lockdowns in China where customers rushed to stock-up for in-home dining. As more are choosing to dine-out, Medium Pack volumes (74% of segment vols) are increasing (+25% y-o-y). Delta-variant risks notwithstanding, wider re-opening should be supportive of overall volumes, we believe.
• Nevertheless, 1H21 PBT/ton margins fell 20% y-o-y as higher commodity input costs began to bite. Wilmar International's management claims they are raising ASPs and these should flow through in 2H21, we believe the full pass-through of costs are unlikely given these are food staples.
• We have lowered 2021-23E segment PBT/ton assumption by 5% each.

Upstream Bright Sport and Crushing Margin Upside

• 1H21 Plantations PBT/ton saw a strong rebound from losses year ago largely driven by higher CPO prices. Supply-demand metrics point to sustained price support in the near term. Feed & Industrial segment PBT/ton also saw a 30% y-o-y increase from supportive palm oil refining margins.
• Oilseed crushing saw lower volumes (-11% y-o-y) from weak downstream demand due to a glut in pork availability. Management claims this is improving in 3Q21.

Staying on Strategy. Maintain BUY

• The IPO of its JV in India is consistent with Wilmar International’s strategy of lower 2021-23E profit after tax forecast for Wilmar International by 3-4% and our blended DCF (WACC 5.3%, 1% terminal growth) and peer P/E (target P/E of 25x) target price to S$6.03.

• Wilmar's share price is now trading at mean P/E and a 44% discount to its peer group. Value unlocking and improving operating conditions should support better momentum going forward, we believe. Maintain BUY.

Source: Maybank Kim Eng Research - 13 Aug 2021