SINGAPORE (Nov 13): UOB Kay Hian is keeping its “buy” call on agribusiness group Wilmar International with an unchanged target price of $3.90, but says 2018 earnings forecasts could be upgraded by 8-10% after Wilmar’s 3Q18 results briefing later this week on Nov 15.
Wilmar on Monday reported an 10.7% increase in 3Q earnings to US$407.4 million ($564 million), driven by better results in Tropical Oils and Oilseeds & Grains and supported by higher share of results of affiliates.
Revenue for the quarter rose 4% to US$11.61 billion, backed by higher sales volumes across all of the group’s businesses.
See: Wilmar reports 10.7% rise in 3Q earnings to $564 mil on better Tropical Oils and Oilseeds & Grains results
In a report on Tuesday, lead analyst Leow Huey Chuen notes that 3Q18 core net profit of US$435 million was Wilmar’s best showing since 3Q09.
“9M18 core net profit was US$970 million, up 49% y-o-y, boosted by strong pre-tax margins from the tropical oil and oilseeds & grains divisions,” Leow says.
“Being the largest palm downstream producer, Wilmar benefitted from depressed selling prices, especially in Indonesia where upstream players are desperately looking for buyers by offering lower prices,” he adds.
The way Leow sees it, investors might see greater value in Wilmar going forward, as more details of its China operations are made available in the listing process.
“IPO shares are likely to be valued at 23x PE, versus 20x PE applied to our current SOTP valuation,” says Leow. “If we peg the China operations at 23x PE, this will add about 30 cents per share to our target price.”
Meanwhile, Leow believes depressed soft commodity prices, which is forcing smaller and inefficient players to sell assets and exit the industry, could benefit bigger players such as Wilmar.
“This will be an opportunity for larger and efficient players to consolidate their market positioning by purchasing assets at reasonable prices and would enhance value of the acquirers,” Leow says.
As at 1.18pm, shares in Wilmar are trading 3 cents higher at $3.21. This implies an estimated price-to-earnings ratio of 12.8 times and a dividend yield of 3.7% for FY18.
