Following Wilmar’s record 3QFY2020 results announcement, analysts are keeping their positive stance on the stock.
The agribusiness group recorded net profit of US$536.6 million ($732.5 million) for the 3QFY2020 ended September, up 20% from the net profit of US$447.1 million the year before. Core net profit for the quarter stood at US$501.4 million up 19.6% y-o-y, making this the highest third quarter core results since the group’s listing.
Revenue for the period was 19.3% higher y-o-y ay US$13.3 billion.
The group attributed its strong results to better-performing core segments from the previous year in terms of both revenue and profit. The strong results also came on the back of strong demand for the group’s food products; higher crushing activities amid the easing African swine fever situation in China; and better performance in the plantation and sugar milling segment due to higher prices achieved during the quarter.
Furthermore, the group also announced a special dividend of approximately 15% of the total IPO proceeds of US$2.06 billion to be declared in Feb 2021 to commemorate the successful listing of Yihai Kerry Arawana (YKA), which analysts estimate could come up to be about 6 to 6.5 cents per share.
See: Wilmar reports record 3Q core net profit of US$501.4 mil
RHB Group Research is maintaining its “buy” recommendation on Wilmar with a higher target price of $5.85 from $5.60 previously, as the 3QFY2020 results have exceeded expectations.
“With the strong set of numbers and positive outlook for 4QFY2020, the group is on track to generate a 10-year record-high profit,” says analyst Juliana Cai.
Meanwhile, the outlook for the next six months remains optimistic, with all three core segments expected to do well – the tropical oil segment is expected to be at the helm, driven by higher CPO prices and healthy processing margins in the near term.
“Management also allayed our concerns on crushing margins, as WIL is able to pass on higher costs to end-consumers. Barring any extreme weather conditions, the group expects crushing margins to remain satisfactory in the near term,” says Cai.
Additionally, higher sugar prices and a premium for white sugar also benefitted WIL’s sugar milling & refining business.
Following the listing of YKA, Wilmar plans to focus on growing its China market on the longer term by going more into downstream consumer staple products. While the group continues to ramp up rice and flour production, it has already started planting new seeds in the condiments and noodles segments for future growth.
Wilmar is also exploring the listing of its other businesses to unlock more value.
Sharing similar sentiments, DBS Group Research is reiterating its “buy” recommendation on Wilmar with a target price of $5.28.
In a Nov 2 report, analyst William Simadiputra says, “Wilmar's operating profit margin (OPM) has been expanding in the last three years and is expected to remain firm from its growing exposure to higher-margin branded kitchen food segment. Wilmar is expected to post sublime FY2020 earnings performance mainly driven by YKA in China.”
With that, the analyst has raised FY2020 and FY2021 earnings estimates by 12% each, driven by higher top line and profitability performance. FY2020 earnings is expected to reach US$1.36 billion and further improve to US$1.38 billion in FY21.
On the outlook, Wilmar is expected to benefit from China’s improving economy and taming Covid-19 situation. Beyond China, the easing lockdown measures in some countries such as India and Indonesia also will help to boost its business in the region.
“Meanwhile, the current strong palm oil price trend will provide another leg of earnings growth for its tropical oil division. Wilmar has proven it can benefit from both upcycle and downcycle edible oil market trends to expand its tropical oil segment earnings,” notes Simadiputra.
Similarly, CGS-CIMB continues to rate Wilmar “add” with an unchanged target price of $5.54.
Analyst Ng Li Fang says, “We gathered that all core segments of the group did better y-o-y, both in terms of revenue and profit in 3QFY2020. The group saw strong demand for its food products and recorded higher crushing activities as African Swine Fever (ASF) eased in China. Both its plantation and sugar milling segments benefitted from higher selling prices achieved for CPO and sugar in 3QFY2020. The group also highlighted that it enjoyed robust tropical oil and sugar refining margins in 3QFY2020, which we suspect could be due to its timely purchase of raw materials.”
Ng also notes that Wilmar’s associates and joint ventures, particularly from India and Africa, also did well.
Likewise, UOB Kay Hian has maintained its “buy” call on Wilmar with an unchanged target price of $5.35 as analysts Leow Huey Chuen and Jacquelyn Yow predict strong earnings continuing into 4QFY2020 and 1QFY2021 for the group.
“China continues to be the main earnings driver with consumer packs sales remaining robust despite the recovery in sales to the HoReCa (hotels, restaurants & catering) sector (implying less cooking at home). The recent sharp rise in vegetable oil prices has minimal impact on Wilmar’s margins as we believe it could have got its feedstock when prices were low,” they write.
Following the successful IPO listing of Wilmar’s subsidiary YKA, the group is not ruling out unlocking value from more of its subsidiaries.
“In our view, these could include Adani Wilmar Ltd (50:50 joint venture in India) and its large palm operations and consumer packs business in Indonesia as well. This value enhancement M&A with new share issuance. Management will also consider using YKA’s equity to embark on value-enhancing M&A in China,” they add.
Maybank Kim Eng has also reiterated its “buy” recommendation on Wilmar with a raised target price of $5.40 from $5.24 previously.
“We estimate positive earnings momentum to carry through to 2021E. While the special dividend announced after successfully listing YKA is lower than expected, there are likely to be further catalysts going forward including share buybacks and additional carve outs and listings,” says analyst Thilan Wickramasinghe.
While Wickramasinghe perceives the group’s special distribution of 15% of YKA’s IPO’s proceeds as “disappointing”, he believes a “high final dividend” is potentially possible due to the strong recovery in 2HFY2020.
“We estimate a 50% payout ratio (c. 45% 2019) plus the special dividend should deliver a yield of 7.3%. Additionally, Management claims they are considering share buy backs to support the current share price,” he notes.
Overall, Wilmar expects its results for the rest of the year to be good.
The group expects to benefit from higher sales volumes in Asian countries where lockdown measures have eased, better sales volumes from China, thanks to a rebound in the economy, expectations that CPO prices will stay firm going into 2021, satisfactory processing margin for tropical oils and oilseeds crush margin and lastly, better sugar operations due to strong white sugar premium and recovering sugar prices.
As at 12.00pm, shares in Wilmar are trading 1.41% higher at $4.31 or 12.4 time FY2020 earnings with a dividend yield of 5.1%, according to RHB’s estimates.
