SINGAPORE (Feb 22): RHB Research is keeping Wilmar International as its top plantation sector and country pick despite a tough 4Q18.
The latest quarter saw the group hit by challenges including an African swine fever outbreak in China and a provision for impairment on its goodwill and sugar milling assets in Australia.
Wilmar saw its earnings fall 52.9% to US$200.9 million ($271.5 million) for the 4Q18 ended December, from US$426.7 million a year ago.
See: Wilmar posts 53% drop in 4Q earnings to $272 mil on lower margin, one-off impairment
Excluding non-operating items, its 4Q18 core net profit was 15% lower at US$337 million, due to weaker oilseeds and grains contribution.
“FY18 core PATMI came in at US$1.3 billion, up 27% y-o-y, and in line with our expectation and 8% above the Street estimate,” says RHB analyst Juliana Cai in a report on Friday.
The brokerage is keeping its “buy” call on Wilmar, but putting its target price of $3.58 under review pending its analyst briefing.
“The tropical oils segment was the key to its outperformance, having benefitted from lower CPO costs and consistently strong demand for biodiesel and downstream products,” says Cai. “Moving into FY19, we expect the tropical oils segment to continue being the key driver of Wilmar’s performance.”
While Wilmar’s oilseeds and grains segment saw lower crushing margins as a result of weaker lower meal demand caused by the African swine fever outbreak in China, CGS-CIMB Research analyst Ivy Ng Lee Fang says it performed “better than expected”.
“We had forecasted a lower crush margin in view of the outbreak of African swine fever,” Ng explains.
“We were pleasantly surprised by strong showings from its tropical oils division in 4Q18, despite lower palm products prices during the quarter as processing margins did better,” she adds. “Its associates and joint ventures also delivered better-than-expected 4Q18 results thanks to stronger profit contributions from China, Europe and Vietnam.”
The brokerage is maintaining its “add” rating on Wilmar, but lowering its target price to $3.96 from $4.10 previously.
The lower target price is due to a 2-3% cut in earnings estimates for FY19-20 to reflect lower crush margins.
As at 2.24pm, shares in Wilmar are trading 14 cents lower, or down 4.1%, at $3.25.
According to CGS-CIMB estimates, the stock is trading at a price-to-earnings (PE) ratio of 13.3 times and a dividend yield of 3.0% for FY19.
