SINGAPORE (May 13): Analysts are upbeat on Wilmar International after it posted a 26% y-o-y rise in 1Q19 earnings to US$257.0 million ($350.5 million).
The stronger bottomline was driven by improved results in the Tropical Oils and Sugar segments, while volume growth in the Consumer Products business further contributed to the results improvements.
However, the improvements were partially offset by negative crush margins and lower volume in the Oilseeds and Grains segment due to the African swine fever outbreak in China and the sharp drop in Brazilian beans basis.
Revenue was 6.2% lower at US$10.4 billion from US$11.1 billion a year ago, despite overall sales volume increasing 4.5% y-o-y.
See: Wilmar posts 26% rise in 1Q earnings to $351 mil on improvements in tropical oils and sugar segments
DBS Group Research is keeping its “buy” call on Wilmar with a target price of $3.87, as DBS believes that the group is off to a good start amid a tough environment.
In a Monday report, lead analyst William Simadiputra says, “We believe Wilmar is able to withstand the trade war tensions and will continue to book solid profitability as it maximises crushing capacity and efficiencies.”
Furthermore, the analyst expects Wilmar’s downstream Tropical Oils division to maintain its profitability amid the low CPO price environment. At the current price, the market is believes to have also priced in concerns over earnings fluctuations ahead, on account of lower commodity prices.
RHB Group Research is also reiterating its “buy” recommendation on Wilmar with an increased target price of $3.80 from $3.63 previously, while keeping the stock as its sector/country pick.
Pretax profit for tropical oils segment soared 81% y-o-y.
Despite lower production yield and CPO prices crippling its plantation business, the group benefited from lower feedstock costs in its refining and downstream business.
Meanwhile, biodiesel should have seen stronger margins during the quarter due to gasoil and palm oil price differentials.
In a Monday report, analyst Juliana Cai says, “We believe 2Q19 should remain strong on the back of low input costs for its downstream segment.”
“We increase our forecasts mainly on stronger downstream margins for tropical oils and the sugar business’ improving performance,” adds Cai.
Similarly, UOB Kay Hian is maintaining its “buy” call on Wilmar with a target price of $3.90.
In a Monday report, lead analyst Leow Huey Chuen says, “We believe the better crushing margins in 2Q19 would be attributed to the arrival of cheaper soybean (high-priced Brazilian soybean likely to have been crushed in 1Q19) and a slight improvement in utilisation rate. However, sales volumes might remain weak as demand for soybean meal is still low amid the African Swine Fever outbreak in China.”
Meanwhile, tropical oils are expected to do well as feedstock prices remain relatively low. Hence, the good downstream margins may sustain into 2Q19.
“We believe there is still upside to Wilmar’s share price despite the 17% YTD rise as current share price is only factoring in 17 times price-to-earnings for its China operation,” adds Leow.
Wilmar will be holdings an analyst briefing on May 15, after which more outlook guidance will be provided by the analysts.
As at 11.30am, shares in Wilmar are trading 1.7% higher at $3.57 or 1.0 times FY19 book, with a dividend yield of 3.1%.
