SINGAPORE (Dec 13): RHB Research is maintaining its “neutral” call on Wilmar International with a lower target price of $3.31 compared to $3.33 previously, after applying a lower target 12 times FY18F P/E for the plantation segment to factor in the shrinkage of sector peer valuations.
In a Wednesday report, analyst Juliana Cai highlights a lack of catalysts for any significant share price recovery in Wilmar, due to the fact that any off-take to additional palm products could be hampered by India’s higher import taxes on both crude and refined palm oil.
This is further exacerbated by Indonesia’s lowered biodiesel quota for Nov 2017 to Apr 2018 by 8% y-o-y, with Wilmar’s allocation falling further by about 20% as industry capacity increased.
“The outlook for palm-based biodiesel export markets is also gloomy, with the high import duties imposed by the US and EU. As such, we think tropical oil margins for 1H18 could come off from 1H17 levels,” comments Cai.
Nonetheless, the analyst believes crude palm oil (CPO) prices are likely to remain relatively range-bound between MYR2,400 ($795.60) and MYR2,700 per tonne, which would limit downside risks for the group.
RHB’s in-house price per tonne assumptions have hence been lifted to MYR2,550 for 2018 from MYR2,400 previously, and to MYR2,700 (from MYR2,500) for 2019 – while FY18-19F estimates have been raised by 4% and 6% respectively to account for higher CPO price assumptions.
It also projects for CPO output in 2018 for both Malaysia and Indonesia to slow down from their respective the 12% and 21% y-o-y jumps in 2017.
Given how the probability of La Niña occurring at end-2017 is now at 75%, Cai emphasises that a mild La Niña could still have an impact on vegetable oil supply and the sentiment on prices.
“We think there is a downside risk here – despite ample global soybean supplies – as any major volatility in soybean prices could negatively impact Wilmar’s soybean crush margins,” comments the analyst.
“We believe the key positive development for 2018 would be the group’s growing consumer pack segment while the China listing is expected to only come in 2019,” she adds.
As at 3:30pm, shares in Wilmar are trading 5 cents higher at $3.16, or 12.6 times FY18F recurring P/E.
