Wilmar International - An Integrated Model Powers a Good Start

1Q15 NPAT boosted by good performance from oilseeds 
1Q15 NPAT US$241m (+49% YoY, -40% QoQ). This represents 18% of FY15E forecast earnings (vs. 20% FY12, 24% FY13, 14% FY14) and much better than the 5- 10% for planters that have thus far reported, differentiating Wilmar given its integrated model versus a pure planter. There was good performance from oilseeds, mitigating poorer performance from tropical oils segment (palm & laurics, plantations) given weaker CPO prices and seasonal loss from its sugar segment (milling, merchandising and processing).

Oilseeds margins recovered, consumer products strong 
New reporting segment combines oilseeds and consumer products; pretax profit rose ~12X to US$166m. Strong recovery driven good volume growth (+13% YoY to 4.8mt), improved crushing margins(likely better than US$10/t, as there are now lower soybean imports into China by financial traders) and continued good performance in consumer products(lower input costs, 3% YoY volume growth).

Tropical oils (plantation & manufacturing) 
New reporting segment combines plantations and palm laurics; 44% YoY decline in pretax profit to US$152m. Lower CPO prices (-16% YoY on average) plus FFB declining9% YoY (impact from very dry weather last year) likely halved plantation earnings. Palm processing margins (likely sub-US$20/t) continues to be weak on industry overcapacity in Indonesia, low CPO supplies plus very weak demand from areas such as China. Market share improved, given flat volumes at 5.6mt versus a backdrop of industry’s 5-10% YoY contraction. There are early signs that the industry is consolidating via capacity sharing (see KLK AALI JV) and Indonesia's move to mandate biodiesel use are 2H15 catalysts given its status as Indonesia’s largest palm/biodiesel processor.


Technical Analysis
Daily Chart
Implications 
Wilmar’s undemanding valuations (0.9x P/B) plus supporting signs of trends supporting sustainable profits in oilseeds and its ability to outperform pure planters given its integrated model should lead it to greater investor interest. Wilmar is on track to generating >10% NPAT growth in FY15. (Read Report)

Source : Citi Research

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