SINGAPORE (Nov 14): Analysts are upbeat and bullish on Wilmar International after the agribusiness group posted a 10% y-o-y increase in 3Q19 earnings to US$447.1 million ($608 million).
3Q19 revenue came in 2.2% lower at US$11.2 billion from a year ago due to lower commodity prices.
Wilmar says the stronger bottomline was driven by better results in tropical oils and consumer products as well as the recognition of a gain from the disposal of the group’s discontinued operations in Brazil.
See: Wilmar reports 10% rise in 3Q earnings to US$447 mil on better performance across all core segments
Following the results announcement, DBS Group Research is maintaining its “buy” call on Wilmar with a higher target price of $4.35 from $4.25 previously.
In a Thursday report, lead analyst Willian Simadiputra says, “As we gather more information on Wilmar’s China operations, we are increasingly convinced that Wilmar’s potential is far greater than market expectations.”
As the market leader in each segment, Wilmar’s presence makes it difficult for competitors to operate meaningfully in each region. This gives Wilmar a solid footing to further grow its market share and earnings. Wilmar is also heading towards having a more stable business model and earnings profile with higher contribution from consumer branded products.
Similarly, CGS-CIMB is keeping its “add” rating on Wilmar unchanged with a target price of $4.58.
In a Tuesday report, analyst Ivy Ng Lee Fang says, “We continue to favour Wilmar for its attractive valuations and proposed plan to list its China operations which we expect will help investors to better appreciate the value of its integrated consumer products operations in China.”
Additionally, Wilmar revealed that it has performed well despite the challenging operating environment and attributed this to its integrated and diversified business model.
Ng agrees that the group’s 3Q results were better than its peers, in view of weaker soymeal demand in China, weak CPO and sugar price environment as well as the slowing global economy.
“Wilmar expects to do reasonably well in 4Q and we are of the view that this could be driven by higher consumer demand and the recent rally in CPO price,” adds Ng.
Similarly, RHB continues to recommend “buy” on Wilmar with a target price of $4.75, while keeping the stock one of its country top picks.
Wilmar is targeting for the listing of its China business to happen in three to four months’ time, at the latest. During the briefing, CEO Kuok Khoon Hong said that the company will pay a “good special dividend” post listing.
In a Thursday report, analyst Juliana Cai says, “Special dividends aside, we believe investors should also reap strong returns from a further rerating of the stock – once the China IPO is completed.”
Cai expects the group to continue performing well in the tropical oils segment in 4Q19, as its plantation unit will gain from the CPO price hike. It is also expected to maintain a decent processing margin for the mid- and downstream businesses, from lower-cost inventories and/or the timely purchase of raw materials.
Wilmar’s oleochemical facility in China has also ramped up capacity and turned profitable, thus further enhancing margins in the tropical oils business.
“We expect volumes to begin picking up in 4Q19 as food and beverage manufacturers, retailers and caterers stock up for the festive season. In addition, management said that smaller soybean crushers have exited the business, due to the challenging operating environment brought on by the African swine fever epidemic. This, coupled with the recent recovery in pork prices in China, could help to boost soybean meal demand for the group,” adds Cai.
As at 12.20pm, shares in Wilmar are trading at $4.01 or 1.1 times FY19 book with a dividend yield of 2.6%, according to RHB’s estimates.
