Wilmar International - Buying opportunity emerges closer to S$3


Wilmar’s 1H FY15 core net profit rose by 21% YoY to US$457 mn, making up 36% of our full-year estimates. 2H should be better, driven by the Sugar, and Oilseed and Grains divisions.

We expect the Oilseed and Grains division to be the key earnings driver in 2H, as management has indicated that crushing margins in China should remain positive for the rest of 2015 (the market is now more rationale), and the Consumer Product unit to remain robust (lower feedstock price).

Wilmar has been trading in a tight range since 2012, between S$3.00 and S$3.60, and thus, a trading opportunity emerges when the stock is closer to S$3.00, as there is strong support at these levels (Wilmar bought back shares at S$3.00 in September 2012 and October 2014). Maintain OUTPERFORM.

We are less fussed about the new accounting standard, IAS 41, as it involves non-cashflow items. Wilmar has only accumulated biological gains of US$686 mn, which is only 2% of its total assets and 4% of its shareholders' funds.

Wilmar’s 1H FY15 core net profit rose 21% YoY Wilmar’s 1H FY15 core net profit rose by 21% YoY to US$457 mn, making up 36% of our full-year estimates. 2H should be better, driven by the Sugar, and Oilseed and Grains divisions.

Tropical oils
Pre-tax profit fell 32% YoY in 1H FY15, as palm oil price was 15% weaker, FFB output fell 3% YoY, manufacturing volumes fell 3%, and the refining margins were weaker.

Oilseed and Grains
1H FY15 recorded profit of US$282 mn, up four fold YoY, with stronger crushing (the China market is now more rationale) and consumer product margins (lower feedstock price). We expect this division to be the key earnings driver, as management has indicated that crushing margins in China should remain positive for the rest of 2015, and for the Consumer Product unit to continue to show a strong performance.

Sugar
1H seasonal losses in the Milling division should revert to profits in 2H. The losses were exacerbated by weak sugar prices.


Technical Analysis
Daily Chart
Buying opportunity emerges closer to S$3.00
Wilmar has been trading in a tight range since 2012, between S$3.00 and S$3.60, and thus, a trading opportunity emerges when the stock is closer to S$3.00, as there is strong support at these levels (Wilmar bought back shares at S$3.00 in September 2012 and October 2014).

Confusion over the new accounting standards
There are worries that the new accounting standard, IAS 41, will result in weaker earnings, but we are less fussed about this in Wilmar's case, as this is a non-cashflow item. Historically, Wilmar has been conservative with calculations, and has thus only accumulated biological gains of US$686 mn, which is only 2% of its total assets and 4% of its shareholders' funds. Maintain OUTPERFORM. (Read Report)

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Source : Credit Suisse Asia Pacific Equity Research

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