SINGAPORE (May 15): OCBC Investment Research is keeping its “buy” call on Wilmar International with an unchanged fair value estimate of $3.51 despite headwinds in the near-term.
This comes after Wilmar saw a 40.6% drop in earnings to US$203.3 million ($273.0 million) for 1Q18 on the back of seasonal sugar losses and a difficult operating environment in the Tropical Oils business.
For the quarter ended March, group revenue grew 5.7% to US$11.17 billion on stronger sales volume recorded by the Oilseeds & Grains business, further aided by higher commodity prices.
See: Wilmar posts 40.6% drop in 1Q earnings to $273 mil on higher expenses
The way OCBC’s lead analyst Low Pei Han sees it, there are currently more positives than negatives for Wilmar.
“The Tropical Oils segment will likely perform better in subsequent quarters,” Low says in a Monday report. “Production for this year may be about 10% higher with more favourable weather, and refining margins may improve in the next few quarters.”
While Wilmar cautioned that any prolonged standoff between China and the US would affect the utilisation of its crushing plants, Low believes this would be partially mitigated by better performance from its flour and rice businesses.
“We estimate that the rice and flour business currently accounts for more than 10% of the oilseeds and grains segment, but management aims to grow this segment which has relatively more stable margins,” the analyst adds.
At the same time, Low opines that Wilimar’s Australia sugar milling business is likely to pick up from 2Q18.
Low also notes that the group’s listing of its China business remains on track, and is likely to happen in mid-2019 or 2H19.
“Meanwhile, the group remains on the lookout for acquisition opportunities,” Low adds, noting that its Adani Wilmar joint venture has put in a bid for debt-ridden edible oil firm Ruchi Soya.
As at 11am, shares of Wilmar are trading 2 cents higher at $3.19, implying an estimated price-to-earnings ratio of 13.4 times and a dividend yield of 3.2% for FY18.
