Not an easy set of results to dissect, complications reduce investors’ interest
Wilmar (WIL) 3Q15 core profit fell 16% YoY to US$359m, bringing 9M15 profit to US$816m (+1% YoY); accounting for 63% and 73% of our and market expectations. Our inability to fully understand WIL's profit movers was the main reason for the miss. While WIL’s business model is a profitable one, it is difficult for analysts or investors to forecast its profit. The complication of its interest and forex trades further obscures matters; reiterating Sell.
WIL treasury team navigated through forex fluctuations to perfection
Note: 20 of WIL’s annual reports show that it actively hedged its forex and rates, and got more aggressive since 3Q14. This has enabled WIL to record only US$85m forex loss to date despite the sharp IDR depreciation. Summing up the net interest income/(expense) with the forex gain/(loss) shows that WIL is winding up the interest arbitrage trade – 9M15 was -US$56.9m while 2014 was US$8m. We expect net interest & forex to normalize to US$-250-300m.
China shows better results but CPO affected by export levy
We have cut FY15/16/17E profit by 13/7/7%, respectively, to reflect the reducing interest arbitrage. On the operational front, China has showed improved crushing PBT margins of US$26/mt (+52% YoY) by assuming US$50/mt consumer pack PBT margins.WIL expects the strong performance to stay. While we concur with WIL’s positive commodity price outlook, we think the operational improvement will only offset the loss of interest arbitrage.
Trading at 2016E P/E of 12.2x, maintaining Sell
Our target price of S$2 is based on FY16E target PE of 7.5x, 1- STD below mean, to account for a potential de-rating driven by reduced transparency amid business complexity and negative earnings growth. Significant improvement in sugar price, supportive Chinese government incentives and reduction in China oilseeds crushing capacity would derail our Sell thesis. (Read Report)
Read Related Reports
1) Wilmar International - Key takeaways from 3Q results briefing by CIMB Research, published on 13 November 2015
2) Wilmar International – Lower tropical oils’ earnings hurt 3Q results by CIMB Research, published on 12 November 2015
3) Wilmar International Ltd - 4Q will be better by Credit Suisse Asia Pacific Equity Research, published on 12 November 2015
4) Wilmar International - Weighed down by strong USD by DBS Group Research, published on 12 November 2015
5) Wilmar - Expects “satisfactory” 4Q15 showing by OCBC Investment Research, published on 12 November 2015
Source : Deutsche Bank Markets Research