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Analysts expect to see q-o-q improvement in Wilmar's 2QFY2022 results following 'decent' 1QFY2022

All analysts have kept their "add" or "buy" calls on Wilmar International with TPs ranging from $5.10 to $6.08.

Analysts are positive on Wilmar International after the agribusiness giant reported earnings and revenue growth for the 1QFY2022 ended March.

On April 29, Wilmar International posted net profit of US$530.3 million ($737.6 million) for the quarter, up 17.8% y-o-y.

Core net profit grew by 18.8% y-o-y to US$503.4 million, while revenue increased by 23.2% y-o-y to US$17.58 billion.

The better financial figures were driven by better performances from Wilmar’s plantation and sugar milling divisions. An exceptional gain from the dilution of interest in Adani Wilmar worth US$175.6 million also helped drive figures up.

After removing non-operating gains and the one-off exception gain from Adani Wilmar, Wilmar’s estimated core net profit of US$327.8 million, which is down 23% y-o-y and 39% q-o-q.

Sequentially stronger earnings expected in 2QFY2022: CGS-CIMB

CGS-CIMB Research analysts Ivy Ng and Nagulan Ravi have kept their “add” call on Wilmar as the group’s results for the 1QFY2022 stood “broadly in line” with their expectations.

To them, Wilmar’s estimated core net profit sans the non-operating gains and one-off exception gain stood at 18.3% of their full-year estimates.

The lower core net profit was attributable to the weaker performances from Wilmar’s feed and industrial segments, which were affected by weak crush margins and weaker demand for consumer pack oils following the recent increase in Covid-19 cases in China. The slowdown of the Chinese economy also contributed to the slower demand for consumer pack oils, note the analysts in their April 29 report.

Wilmar’s 89.99%-owned subsidiary, Yihai Kerry Arawana (YKA), was also a key drag on the group’s 1QFY2022 earnings.

During the quarter, YKA saw net profit decline 56.9% y-o-y to US$125.3 million.

Share of profits from joint ventures and associates was also weaker in 1QFY22 due to weaker contributions from China and Europe.

Looking ahead, Ng and Ravi expect the higher raw material costs to negatively impact Wilmar’s food products segment margin, although the high commodity prices from the Russia-Ukraine war will benefit its plantation and sugar milling division in the coming months.

It added that the earnings contributions from Russia and Ukraine, which are likely to be negatively impacted, are not material.

“However, we are concerned that the group’s tropical oils operations will be impacted by Indonesia’s recent ban on export of crude palm oil, refined, bleached, and deodorised (RBD) palm oil, RBD palm olein and used cooking oil as this could disrupt its milling and refinery processing volumes and margins,” note the analysts.

“This could be partly offset by better performances from its refineries located outside Indonesia,” they add.

On this, the analysts have kept their target price of $5.69, which represents an implied FY2022 P/E of 15x.

“Despite short-term challenges, we maintain our ‘add’ rating as Wilmar offers attractive FY2022 P/E valuation of 11.4x and dividend yield of 3.9%. Key downside risks [are] the inability to pass on rising costs and unfavourable government policies,” they write.

In a separate report on May 4, CGS-CIMB’s Ng remains positive on Wilmar following the group’s results briefing as she expects to see q-o-q growth in 2QFY2022’s core net profit, excluding one-off gains from Adani Wilmar’s listing.

“Despite the tough operating environment, Wilmar expects its FY2022 earnings to be satisfactory,” Ng writes.

Ng notes the four key positive takeaways from the briefing for analysts, which include q-o-q higher pre-tax profit of Wilmar’s food products segment on the back of higher average selling prices (ASPs); improved soybean crushing margin in China; the commencement of operations of Wilmar’s new central kitchen in Hangzhou China; as well as the selling of another 6.5% stake in Adani Wilmar within three years of the latter’s listing, which took place on Feb 8.

“In 1QFY2022, Wilmar had booked a gain of US$175.6m on the dilution of a 6% interest in Adani Wilmar following its listing. Adani Wilmar’s share price has surged 311% to Rs715.95 ($12.85) from its IPO price of Rs230,” Ng says.

In addition, Indonesia’s export ban on palm oil is likely to be temporary as the country produces more palm oil than its domestic needs.

“The potential earnings impact from this ruling on Wilmar will be dependent on when the government lifts the export ban; we predict in a month’s time,” says Ng.

She adds: “The group expects the export ban to be lifted once there is adequate supply of cooking oil domestically. The export ban is likely to be negative for upstream producers and neutral for domestic cooking oil producers in Indonesia. Wilmar said it still has storage capacities in Indonesia and can continue to buy fresh fruit bunches (FFB) from farmers for processing”.

On the whole, Ng sees Wilmar as being currently undervalued as its 90% stake in YKA and 44% stake in Adani Wilmar of US$38.3 billion is 89% higher than its market cap of US$20.1 billion.

Wilmar to become net beneficiary of food inflation pressures: Citi

Citi Research analyst Jame Osman has kept his “buy” call on Wilmar with an unchanged target price of $6.08.

To him, Wilmar’s headline results for the 1QFY2022 stood higher than the brokerage’s above-consensus expectations.

However, the group’s underlying operational trends looked mixed. Sans the one-off gain from the listing of Adani Wilmar, Osman notes that the performance of Wilmar’s mid and downstream businesses may have been softer-than-expected, particularly with YKA’s 56.9% y-o-y decline in its core net profit.

“Overall [Wilmar’s] feed and industrial products segment was negatively impacted by weak crush margins due to lower meal demand, and consumer product sales volumes (-6.2% y-o-y) continued to be impacted by consumption slowdown in China,” he writes in his May 2 report.

Investors should look out for near-term headwinds, which the group has to navigate. These include Indonesia’s recent palm oil export ban, corruption allegations against one of the group’s employees, as well as Wilmar’s soybean crushing business, which could “remain challenged” by poor hog farming margins in China.

Following Wilmar’s briefing to analysts, Osman also expects Wilmar to report higher 2QFY2022 earnings with a better second quarter expected from China.

Like CGS-CIMB’s Ng, he expects to see further potential gains from Adani Wilmar.

“Our structural view of Wilmar and its business model remains intact. We believe the company will be a net beneficiary of food inflation pressures as Citi’s commodities team expects prices for staple grains and veg. oils could remain stronger for longer,” he writes.

“Valuations remain compelling, in our view, with the stock trading at FY2022 P/E of 10x; over 1 standard deviation below past [its] 10-year mean of 14.2x,” he adds.

Wilmar’s 1QFY2022 performance ‘decent start to the year’: RHB

The team at RHB Group Research has deemed Wilmar’s 1QFY2022 performance a “decent start to the year”.

In their May 5 report, the team has kept their “buy” call as the group’s performance stood in line with their estimates at 25% to 27% of their FY2022 forecasts.

“Despite all this, we believe the stock remains severely undervalued – it is trading at 10x FY2022 P/E vs China-listed peers’ 26-39x, especially given the imminent future value-unlocking exercises,” the team writes.

That said, the team has lowered its target price on Wilmar to $5.10 from $5.30, which includes a 2% ESG premium.

The team has also trimmed its earnings estimates for the FY2022 to FY2024 by 3% to 4% after reducing its consumer pack, oilseeds and grains sales volumes, to account for the impact of the China lockdowns and weak demand from the poultry and swine farmers.

“We believe the process of value-unlocking is still imminent, with the next round being the sale of another 6.5% of Adani Wilmar (likely sometime next year), which could reap it an additional $960 million, based on the latest price,” the team writes.

China operations showing improvement: UOB Kay Hian

UOB Kay Hian analysts Leow Huey Chuen and Jacquelyn Yow are also keeping their “buy” calls on Wilmar with an unchanged target price of $5.50 after the group’s 1QFY2022 results.

The analysts are also maintaining their earnings forecast as the shortfall in the 1QFY2022 was “made up by the gain from the stakes dilution in Adani Wilmar”.

“Our current net profit forecast is at US$1.77 billion, US$1.82 billion and US$2.0 billion for 2022, 2023 and 2024 respectively,” they write in their May 5 report.

To the analysts, they are seeing “good improvement” in Wilmar’s China operations for the 2QFY2022, especially for the consumer packs and soybean crushing segments.

“Thus, the performance of YKA is likely to be better in 2QFY2022 than in 1QFY2022. In addition, the selective palm product export ban in Indonesia is expected to have marginal impact to the bottom line if the ban is lifted within a short period of time,” they write.

“The real impact on palm downstream margin is from the sharp rise in exports levy,” they add.

Shares in Wilmar closed 11 cents lower or 2.56% down at $4.18 on May 10.

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