■ The strong results were broadly in line with our and consensus expectations.
■ Another positive from 2Q is the interim tax dividend of S$0.035/share (+17% yoy).
■ However, the group said that a prolonged US-China trade war will negatively impact its crush margins due to lower plant utilisation.
■ Maintain Add with SOP-based target price of S$4.10/share, due to its attractive valuations and plans to list its China operations. Read More
Strong 2Q results were broadly in line with expectations
Wilmar recorded an almost tenfold increase in its 2Q18 core net profit to US$351.8m, due mainly to stronger performances across all its key segments. This helped to boost its 1H18 core net profit by 53%. 1H18 core net profit formed 48% of our and 46% of consensus full-year forecasts. We consider this to be broadly in line. Wilmar’s 1H core net profit has over the past five years accounted for 0.2-43% of its full-year core earnings (average at 29%).
Best 2Q core net profit since 2011
2Q has historically been the weakest quarter for the group due partly to seasonal factors. As such, we were pleasantly surprised by the strong net profit in 2Q18 (+92.5% qoq) which was driven mainly by higher tropical oils and oilseeds and grains earnings, as well as lower losses from the sugar division. In line with the better performance, the group announced a 17% rise in its interim tax-exempt dividend to S$0.035/share.
Oilseeds and grains benefitted from higher crush margins
The oilseeds and grains division was the largest earnings growth driver for the group in 2Q18 and 1H18. This division posted a 73% increase in PBT to US$462.8m in 1H18. This represents the best 1H performance by the oilseeds and grains unit since the group merged the oilseeds and grains division with its consumer product segment. The sterling performance was due to higher sales volumes and crush margin as well as better results from the consumer products division.
Stronger processing margin trumped lower CPO prices
The tropical oils segment (plantations and palm oil processing) posted close to a threefold jump in its pretax profit on a yoy basis in 2Q18 to US$155m due to better performances from its oleochemicals, biodiesel and specialty fat businesses. This more than offset the lower CPO prices in 2Q18. The sugar division recorded lower pretax losses of US$46m in 2Q18, thanks to better performances from the sugar merchandising and processing operations.
Potential impact from US-China trade tensions
The group revealed that the trade tensions between the US and China have improved crush margins in the short term and this has benefitted its oilseeds crushing business. However, a prolonged dispute between the two countries will have a negative impact on crush margins due to lower plant utilisation. It expects its consumer products, rice and flour milling to perform well in the coming quarters, while downstream businesses of tropical oil to benefit from increased demand and better margins.
We continue to favour Wilmar due to its attractive valuations and proposed plan to list its China operations. The stock currently trades at a forward P/E of 13.2x and P/BV of 0.92x. Key risk to our view is lower-than-expected crush and refining margins as well as lower CPO and sugar prices. Maintain Add and SOP-based target price of S$4.10.
Source : CGSCIMB Research
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