SINGAPORE (June 27): OCBC Investment Research is maintaining “neutral” on soft commodities with Wilmar International as its top sector pick due to its more diversified operations compared to industry peers.
The counter has been rated “buy” with an unchanged fair value estimate of $3.51.
OCBC’s cautious sector outlook comes ahead of China’s July 6 implementation of 25% tariffs on US goods, including soybeans, which has prompted US soybean futures to fall to a low of about US$852/bushel.
See: US weighs fresh China talks amid split on Trump trade team
In a Wednesday report, lead analyst Low Pei Han says she expects soybean prices to remain volatile considering how they are down about 15% from a month ago at their current levels, with crude palm oil (CPO) prices to remain lacklustre.
While Low is expecting the tariffs to subsequently drive the prices for products such as soyoil and soymeal higher, she also believes substitutes of these products including corn meal, CPO and rapeseed oil – all of which Wilmar trades in – would see higher demand as a result.
“We would also monitor the utilisation levels of the group’s crushing plants in China, which remained high (more than 80%) as of a month ago. According to management, even though performance of its oilseed crushing business will not be affected in the short term, a prolonged standoff between China and the US would impact the utilisation of its crushing plants,” notes the analyst.
In particular, Low highlights that Wilmar is presently sourcing soybeans from South American countries including Argentina and Brazil, in the face of the impending tariffs.
“China, the world’s largest soybean buyer, can afford to implement tariffs this summer as they have Brazil’s record harvest to help supply their needs. Brazilians gather in their soybean crops from Feb through May, while US soybeans are harvested from late Sep through Nov. After Aug/Sep, when Brazilian harvests are mostly exported, international buyers most likely have to turn to more US supplies,” she explains.
As at 11am, shares in Wilmar are trading 3 cents higher at $3.09.
