Tuesday 10 September 2013

Wilmar

OCBC on 6 Sept 2013

Wilmar International Limited’s (WIL) share price has taken a bit of a hit after it reported slightly below par 1H13 results on 7 Aug (core earnings met about 40% of our previous full-year forecast), falling 4.5% to a recent low of S$3.0x. But as mentioned in our 12 Aug report, we would be buyers at S$3.10 or better, as we believe that most of the risks would have been captured in the price. Keeping our fair value at S$3.33 (still based on 12.5x blended FY13/FY14F EPS), we note that there is now a decent 10% upside from here. Hence we are upgrading our call from Hold to BUY. Note that an appreciating USD against SGD would also have a modest boost to our fair value.

Fallen to a decent entry level
Wilmar International Limited’s (WIL) share price has taken a bit of a hit after it reported slightly below par 1H13 results on 7 Aug (core earnings met about 40% of our previous full-year forecast), falling 4.5% to a recent low of S$3.02. But as mentioned in our 12 Aug report, we would be buyers at S$3.10 or better, as we believe that most of the risks would have been captured in the price.

Upgrading to BUY
Keeping our fair value at S$3.33 (still based on 12.5x blended FY13/FY14F EPS), we note that there is now a decent 10% upside from here. Hence we are upgrading our call from Hold to BUY. Note that an appreciating USD against SGD would also have a modest boost to our fair value. 

Should also expect a better 2H performance
In addition, WIL tends to perform better in the second half. One reason is the seasonality of its sugar business in Australia. That outfit will typically reverse from a loss-making position to a highly profitable one. And with the sugar prices (see Exhibit 2) already on the rebound, we believe that 2H13 would be no exception (although there may still be lingering concerns over a mystery cane disease – Yellow Canopy Syndrome – that causes canes to turn yellow).

Limited impact from slowing China growth
Meanwhile, China – WIL’s largest market – appears to be opting for slower growth this year to allow the government to solve fundamental problems hindering long-run development, according to President Xi Jinping . However, we note that market still expects China to expand by 7.5% this year, which should not pose any issues for WIL’s consumer pack business. Management had previously said that retail packs are fairly resilient and may even benefit from more people choosing to cook at home rather than dining out.


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