■ El Nino gaining strength. Wilmar exposed through CPO,
soybean & sugar.
■ 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
Labels: CPO, Palm Oil, Wilmar International