Towards Financial Freedom
Wilmar International - Soybean crushing margins stabilising BUY
- We are upgrading our recommendation on Wilmar International Ltd from HOLD to BUY, with an unchanged fair value of S$3.74/share. Our fair value implies an FY14F PE of roughly 13x. At the current share price, Wilmar is currently trading at an undemanding FY14F PE of 11x.
- Wilmar's 1QFY13 results were within consensus estimates and our forecast. We expect a stronger set of results in 3QFY13, which should bring the group's full-year net profit close to our expectations. 3Q is usually Wilmar's best quarter due to the festive period in China.
- Wilmar's net profit rose 23.3% YoY to US$315.4mil in 1QFY13 in spite of a 2.6% decline in turnover. The group's net profit growth was driven by improved performances from the oilseeds and grains (mainly soybean crushing and refining) and sugar divisions.
- After challenging operating conditions in the soybean crushing industry in China last year, industry dynamics are finally improving partly supported by soft soybean prices.
- Pre-tax profit margin of the oilseeds and grains division swung from a negative US$11.91/tonne in 1QFY12 to a positive US$10.11/tonne in 1QFY13. In absolute terms, the division recorded a pre-tax profit of US$47.2mil in 1QFY13 versus US$52.5mil in 1QFY12.
- Pre-tax profit margin of the palm and laurics (mainly palm oil refining) division declined from US$45.45/tonne in 1QFY12 to US$39.55/tonne in 1QFY13.
- We believe that the fall in margins is a reflection of not only lower selling prices but also, the competitive pressures from the increase in refining capacity in Indonesia.
- Profitability of the sugar division improved on the back of sronger margins from the Indonesian refineries. The sugar refining division recorded a pre-tax profit margin of US$34.80/tonne in 1QFY13 compared with US$20.43/tonne in 1QFY12. On the milling side, the division's pre-tax loss narrowed from US$682.31/tonne in 1QFY12 to US$574.29/tonne in 1QFY13.
- The weak component in the results was in the "others" division. The division's profit swung from a positive US$91.5mil in 1QFY12 to a negative US$13.6mil in 1QFY13 partly due to a fall in fertiliser prices.
Source: AmeSecurities
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