Tuesday 9 April 2013

Wilmar International

DBS on 8 Apr 2013

WE learned over the weekend that the authorities in Hangzhou and Nanjing have suspended live poultry trades, making them the second and third cities after Shanghai to take action to curb the spread of the H7N9 virus which had caused six deaths last week.
According to media reports, Shanghai culled 20,000 birds on Friday. The culling has remained insignificant so far, but an escalation may cut soybean meal demand/ prices, and in turn, crush margins in China.
Elsewhere, we estimate Indonesian palm oil gross refining margins have now dropped to US$45 per tonne from US$77 in December 2012, while Malaysian margins are flat at US$48.
Although we are projecting only US$31-33 per tonne pretax margins, there is downside risk if we impute trade barrier costs (ie, Indian import tax).
Our initial margin assumptions were aggressive. We now cut palm & lauric pretax margins to US$26-27 per tonne after imputing higher trade costs.
We are keeping our forecast FY2013 oilseeds & grains pretax margin at US$3 per tonne, but cut next year's margin to US$5 from US$6. These reduced our discounted-cash-flow-derived target price to US$3.72.
We call a "hold" and see 9.7 per cent upside to the revised target price.
Despite near-term challenges, Wilmar's long-term growth outlook is intact, led by recovering crude palm oil prices, expansion in branded consumer, sugar origination and investments in Africa.
HOLD

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