RHB Group Research analyst Juliana Cai has maintained “buy” on Wilmar International with a raised target price of $6 from $5.85 previously.
“If Yihai Kerry Arawana’s post-listing share price performance and special dividends are not enough to lift Wilmar's share price, then strong commodities prices and rising margins are here to give it another booster shot in 2021,” says Cai in a note dated Jan 7.
Cai opines that the group has “struck oil” as it rides on a price uptrend for crude palm oil (CPO).
CPO began 2021 on a high with prices hitting RM4,000 per tonne ($1,312.91 per tonne).
“We expect prices to remain buoyant in 1Q2021 driven by a low production season, La Nina impact on soybean crops, higher festive demand for Lunar New Year, and renewed confidence on Indonesia’s Biodiesel mandate with the new export levy,” she says.
Cai has also noted that Wilmar’s upstream oil palm business would stand to gain on rising margins, since its cost of production is stable at about US$400 ($527.13) per tonne.
“Although its Indonesian plantations would have a lower realised CPO price as a result of the export levy, it is still enough for bountiful profits.”
Wilmar is also in a position to take advantage of Indonesia’s export levy structure.
The Indonesian government has set the reference price for CPO at US$951.86 per tonne for January.
At this price, CPO exports from the country will incur tariffs of US$224 per tonne.
Together with an export tax of US$74 per tonne, this means that upstream plantation players would receive a discount of as much as US$299 per tonne for CPO sales in January, boding well for Wilmar, being the largest palm oil processor in Indonesia.
At the same time, local downstream players would stand to benefit from lower domestic CPO prices.
Crush margins also remain healthy for the group, says Cai.
While soybean prices have reached a six-year high at US$13.70 per bushel, China’s soybean meal and bean oil prices have risen in tandem, which means that crushers like Wilmar should be able to pass on rising input costs.
In addition, “China’s rapid recovery from Covid-19, coupled with the festive season, should boost food & beverage (F&B) industry demand for bulk-packed oil in 1Q2021,” says Cai.
Meanwhile, China’s swine inventory has reached 90% of pre-African swine fever (ASF) levels in end-Dec 2020.
“Though hog prices have moderated from the peak, current prices remain substantially higher than pre-ASF levels to absorb higher soybean meal prices,” Cai adds.
Higher sugar prices on the back of a lower supply could also mean less drag from subsidiary Shree Renuka and a higher contribution from its Australian sugar unit in 2HFY2021.
On this, Cai views Wilmar’s near-term prospects as positive.
“Potential corporate actions such as the listing of its other business units are possible catalysts down the road. Wilmar remains one of our Top Picks for the regional plantation sector,” she says.
“Longer term, Wilmar could potentially also list its other business units to unlock more latent value in the company,” she adds.
As at 3.59pm, shares in Wilmar are trading 10 cents higher or 2.02% up at $5.05.
