Wilmar International Limited (WIL) made a dismal start to FY14, with reported net profit tumbling 49% YoY and 56% QoQ to US$161.8m, hit by negative soybean crush margin and lower demand for soybean meal; also higher seasonal losses in its Sugar business. Excluding exceptional items, core earnings came in around US$215m, still down 32% YoY and 39% QoQ, meeting just 15% of our FY14 forecast. Revenue of US$10,268.6m (+1% YoY but down 12% QoQ) met 22% of our full-year forecast. And while WIL could see QoQ improvement in 2Q14, we deem it prudent to pare our FY14 earnings by 21% (FY15 by 2%). Our fair value drops from S$3.65 (12.5x FY14F EPS) to S$3.36 (12.5x blended FY14/FY15F EPS). Downgrade to HOLD for now; we would be buyers again at S$3.10 or better.
Dismal start to FY14
Wilmar International Limited (WIL) made a dismal start to FY14, with reported net profit tumbling 49% YoY and 56% QoQ to US$161.8m, hit by negative soybean crush margin and lower demand for soybean meal; also higher seasonal losses in its Sugar business. Excluding exceptional items, core earnings came in around US$215m, down 32% YoY and 39% QoQ, meeting around 15% of our FY14 forecast. Revenue of US$10,268.6m (+1% YoY but down 12% QoQ) met 22% of our full-year forecast.
Negative crush margin hit bottom line
By business segments, management noted that the biggest drag came from its Oilseeds & Grains business, which saw PBT margin tumble to a loss of US$11.6/MT versus US$19.8 in 4Q13 and US$10.1 in 1Q13. But management believes that the tough crushing conditions in China are not sustainable and WIL will ultimately benefit from the resultant consolidation in the industry. At the other end of the spectrum, WIL says it is encouraged by the continual growth in its consumer product sales volumes, especially in rice, flour and in emerging markets like Vietnam and Indonesia. As for its sugar business, management remains confident about the long-term prospects; still expects the seasonal pickup in the second half.
Still keen on expanding further downstream
Meanwhile, the company is still keen on expanding its downstream business. Although WIL could not comment on the Goodman Fielder offer, management did say they will look elsewhere for investment opportunities. We think that this makes sense as the expansion downstream would lead to a better utilization of their well-established distribution channels, not only in China but also in places like India and Africa.
Downgrade to HOLD with lower S$3.36 fair value
And while WIL could see QoQ improvement in 2Q14, we deem it prudent to pare our FY14 earnings by 21% (FY15 by 2%). Our fair value drops from S$3.65 (12.5x FY14F EPS) to S$3.36 (12.5x blended FY14/FY15F EPS). Downgrade to HOLD for now; we would be buyers again at S$3.10 or better.
Wilmar International Limited (WIL) made a dismal start to FY14, with reported net profit tumbling 49% YoY and 56% QoQ to US$161.8m, hit by negative soybean crush margin and lower demand for soybean meal; also higher seasonal losses in its Sugar business. Excluding exceptional items, core earnings came in around US$215m, down 32% YoY and 39% QoQ, meeting around 15% of our FY14 forecast. Revenue of US$10,268.6m (+1% YoY but down 12% QoQ) met 22% of our full-year forecast.
Negative crush margin hit bottom line
By business segments, management noted that the biggest drag came from its Oilseeds & Grains business, which saw PBT margin tumble to a loss of US$11.6/MT versus US$19.8 in 4Q13 and US$10.1 in 1Q13. But management believes that the tough crushing conditions in China are not sustainable and WIL will ultimately benefit from the resultant consolidation in the industry. At the other end of the spectrum, WIL says it is encouraged by the continual growth in its consumer product sales volumes, especially in rice, flour and in emerging markets like Vietnam and Indonesia. As for its sugar business, management remains confident about the long-term prospects; still expects the seasonal pickup in the second half.
Still keen on expanding further downstream
Meanwhile, the company is still keen on expanding its downstream business. Although WIL could not comment on the Goodman Fielder offer, management did say they will look elsewhere for investment opportunities. We think that this makes sense as the expansion downstream would lead to a better utilization of their well-established distribution channels, not only in China but also in places like India and Africa.
Downgrade to HOLD with lower S$3.36 fair value
And while WIL could see QoQ improvement in 2Q14, we deem it prudent to pare our FY14 earnings by 21% (FY15 by 2%). Our fair value drops from S$3.65 (12.5x FY14F EPS) to S$3.36 (12.5x blended FY14/FY15F EPS). Downgrade to HOLD for now; we would be buyers again at S$3.10 or better.
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