SINGAPORE (Feb 21): Credit Suisse is maintaining its “neutral” call on Wilmar International despite expecting strong 1Q17 results as there appears to be little earnings visibility going forward.
Credit Suisse is revising up its FY17/18 earnings estimates by 3-4% and also upgrading its target price to $3.73 from $3.10 to take into account the more vibrant China and Singapore markets.
In a Monday report, analyst Tan Ting Min says Wilmar should do even better in 1Q17 for a few reasons. Palm oil prices in USD are up 28% y-o-y; Fresh Fruit Bunch (FFB) output should rise as the impact of El Nino fades and Wilmar has secured 0.5 million kilolitres in the third biodiesel tender from Pertamina. Meantime, the sugar unit should gain from the upward trend in sugar prices while the “oilseeds and grains” market in China appears to have become more rational.
Wilmar’s 2Q16 loss of US$344 million ($474.4 million) from the oilseed division should be a one-off occurrence too.
To recap, Wilmar’s core net profit in FY16 fell 14% y-o-y to US$977 million, 22% above consensus, with stronger profits from the tropical oils and sugar units, and aided by a US$142 million deferred tax asset. Excluding the tax asset, its FY16 core profit would have been only 4% above consensus.
(See also: Wilmar posts 70% rise in 4Q earnings to $836 mil on stronger all-round performance)
In 4Q16, tropical oils saw pre-tax profit jump 94% y-o-y as palm oil spot prices rose 30% higher y-o-y in USD, while 4Q FFB output was down 2% y-o-y due to replanting. “It appears that palm stress is dissipating and Wilmar’s FFB output should be on an upward trend going forward,” says Tan.
For oilseeds and grains, 4Q16 pre-tax profit rose 8% y-o-y, as crushing margins were stable while consumer product volumes rose 18% y-o-y due to the early Chinese New Year festival.
As at 3.20pm, shares of Wilmar are down 12 cents at $3.78.
