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Analysts keep ‘buy’ calls on Wilmar after ‘strong’ FY2022 results

The analysts' target prices range from $4.82 to $6.67.

Analysts are all remaining positive on Wilmar International F34 after the group posted a record set of earnings of US$2.4 billion ($3.2 billion) for the FY2022 ended Dec 31, 2022.

In a flash note on Feb 22, the team at DBS Group Research has kept its “buy” call with an unchanged target price of $6.67 after Wilmar’s core net profit of US$468 million for the 4QFY2022 came within the team’s estimates.

The team’s target price, which is the highest among its peers, comes as it believes Wilmar’s strong integrated platform will reward investors with return on equity (ROE) expansion and a steady stream of dividends.

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“The platform enables Wilmar to penetrate further downstream to the central kitchen as well as downstream products such as condiments and instant noodles,” writes the team.

That said, after a “strong” FY2022, the team is forecasting Wilmar’s earnings to decline by 18% y-o-y to US$1.98 billion in the FY2023. “We conservatively assume the profit windfall from extreme commodity price volatility in 2022 due to Indonesia palm oil export regulation changes, and Russia-Ukraine war will be largely absent. Wilmar successfully navigated volatility in 2022 and delivered strong earnings performance.”

UOB Kay Hian analysts Leow Huey Chuen and Jacquelyn Yow have also kept their “buy” call with an unchanged target price of $5.50, the second highest among the brokerages so far.

Wilmar’s FY2022 core net profit of US$2.24 billion, which is the group’s second straight year of record profits, also stood within Leow and Yow’s expectations.

To the analysts, Wilmar’s FY2022 results brought in more positive surprises such as the better-than-expected feed & industrial products segment and strong contributions from its joint ventures (JVs), which more than offset the weaker performance from Wilmar’s food products segment.

The way they see it, Wilmar’s FY2023 earnings may see a reversal in terms of segmental contributions, with Yihai Kerry Arawana (YKA) regaining the top position in terms of profit before tax (PBT) contributions.

The analysts also expect China’s reopening to boost sales volumes; PBT margins should recover with the easing of commodity prices.

That said, the good palm refining margin is unlikely to sustain moving into the FY2023 as the analysts do not expect a huge discrepancy between the Indonesian palm oil domestic prices vs global palm oil prices in 2023.

The analysts have kept their earnings forecasts unchanged for the FY2023, FY2024 and FY2025 at US$1.9 billion, US$2.19 billion and US$2.44 billion respectively.

Citi Research’s Jame Osman is also keeping his “buy” call with an unchanged target price of $5.35 as Wilmar’s revenue and net profit for the FY2022 beat his full-year estimates.

That said, Osman notes that the group’s operational trends were mixed with its midstream business performance being the “main positive surprise” while its downstream and upstream businesses came in weaker than expected.

“Ahead, we believe domestic demand expansion should drive a recovery in YKA’s contribution to Wilmar’s overall earnings in the near-term. We also expect higher midstream utilisation from higher production growth trends, as well as upstream support from higher-for-longer crude palm oil (CPO) and sugar prices,” writes Osman.

CGS-CIMB Research’s Ivy Ng has also kept her “add” call with a higher target price of $4.82 from $4.68 after Wilmar’s FY2022 earnings stood above her expectations.

This is thanks to the lower-than-expected effective tax rate of 14% in the 2HFY2022, compared to 23% in the 2HFY2021, she notes. The lower-than-expected effective tax rate was likely due to higher offshore hedging profit in Singapore, which attracted corporate tax rate of only 5%, she adds.

Wilmar’s total dividend of 17 cents for the FY2022, however, came below Ng’s estimates of 21 cents per share, even though that was the group’s highest dividend since its listing.

In FY2023, Ng estimates that Wilmar will see a 16% y-o-y decline in its net profit due to lower CPO prices and palm processing margin as well as a higher effective tax rate. That said, she has raised her net profit forecast for the FY2023 to FY2024 by 8% to 10% to reflect higher profit margin for food segments on the back of stronger pricing power after China ends its zero Covid policy.

However, this will be partially offset by higher food products profit due to lower raw material costs, she says.

Ng is also projecting average CPO prices to fall by 25% y-o-y in FY2023 and Wilmar’s mid-to downstream palm business to record lower profit margin due to lower volatility in commodity prices.

Ng’s higher target price has factored in the market capitalisation of YKA and Adani Wilmar.

To her, Wilmar offers attractive an attractive FY2023 P/E valuation of 10x and FY2023-FY2024 dividend yield of 4%.

As at 11.56am, shares in Wilmar are trading 2 cents higher or 0.5% up at $4.

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