Wilmar International

OCBC on 11 May 2012

In react to its poor 1Q12 results, Wilmar International Limited’s (WIL) share price took a massive 9.1% tumble yesterday. As we had articulated in our 4Q11 results report (22 Feb), the market appears to be anticipating a much stronger recovery, but not supported by the 4Q11 results and its outlook. True enough, our view was reinforced by the 1Q12 results. In any case, we are paring our FY12 earnings forecast by 18% (FY13 by 12%). While we are keeping our valuation peg at 15x (one SD below its 3-year mean), our fair value drops to S$4.30. Maintain HOLD. We would be buyers closer to $4.00.

Dismal 1Q12 results
Wilmar International Limited’s (WIL) 1Q12 revenue grew 9.8% YoY (but fell 9.1% QoQ) to US$10,470.9m, meeting 20.4% of our full-year forecast. But net profit tumbled 33.8%% YoY and 48.8% QoQ to US$255.9m; core profit fell by a larger 51% YoY to US$206m, meeting just 12% of our FY12 forecast. While volumes have increased in 1Q12, we note that WIL saw weaker margins in oilseeds & grains (which turned in a loss-before-tax of US$52.5m); sugar also posted a larger loss of US$47.9m before tax versus US$7.2m in 1Q11, which WIL attributed to slightly higher costs in off-season maintenance program in sugar milling. On the bright side, WIL mentioned that it saw improved margins from Consumer Products segment; it also benefited from the revised Indonesian export duty structure.

Oilseeds&Grains still biggest drag
As mentioned earlier, Oilseed & Grains segment turned in a very poor quarter, hit by both depressed crushing margins as well as untimely purchases of raw materials. According to management, if it had made timely purchases of raw materials, the division would have profitable. Nevertheless, management continues to see surplus crushing capacity in China, which may take as long as three years to clear, suggesting that depressed margins may persist; in any case, it continues to remain upbeat about the demand for crushed meal (for animal feed) for the next 10 years.

Market too optimistic about recovery
As we had articulated in our 4Q11 results report (22 Feb), the market appears to be anticipating a much stronger recovery, but not supported by the 4Q11 results and its outlook. True enough, our view was reinforced by the 1Q12 results. Hence it was not surprising to see the stock suffer a massive 9.1% tumble yesterday. In any case, we are paring our FY12 earnings forecast by 18% (FY13 by 12%). While we are keeping our valuation peg at 15x (one SD below 3-year mean), our fair value drops to S$4.30. Maintain HOLD.