■ Estimate worst PBT impact at -6%. No change to EPS for now.
■ Maintain BUY & SGD4.04 TP, at 15x FY15 P/E. Catalysts expected from improving soybean-crushing margins & sugar/commodity growth propellers. Still our top sector pick.
El Nino conditions in the tropical Pacific Ocean are gaining strength. Last Wednesday, Japan’s Meteorological Agency warned that El Nino is growing stronger and that its effects could last until winter. Based on current unusual warming of the tropical Pacific not seen since 1997, this could be the strongest El Nino on record. El Nino can lead to scorching weather across Southeast Asia, Australia and India while bringing ample rainfall to the southern US and South America. Most soft commodities would be hit, with Wilmar primarily affected by CPO, soybean and sugar.
What’s Our View
We estimate that higher CPO prices will raise feedstock costs for Wilmar’s mid-stream processing. On the other hand, its soybean crushing may profit from ample soybean supply from South/North America and lower prices. The impact on sugar is more complicated and may be slightly positive for Wilmar. On balance, without considering trading opportunities from more-volatile commodity prices, we think El Nino would hurt its PBT only mildly.
Even then, we believe Wilmar can better withstand commodity price volatility than peers. As its business is integrated, its earnings should be more stable and visible. We believe the recovery of its soybean-crushing operation could underpin its short-term growth, with sugar and consumer products providing longer-term growth. Maintain TP at 15x FY15 P/E, its 5-year mean. (Read Report)
Source : Maybank Kim Eng Research