- 2Q14 results still weak and fell short of market expectations.
- Cut FY14E-16E EPS by 8-9% for lower Palm & Laurics margins.
- Reiterate BUY with higher TP of SGD4.08 (from SGD3.94; 15x FY15E P/E) after rollover. Better soybean crushing and sugar conditions next year.
2Q14 net profit (USD170m) was 8% below our forecast (USD185m). While soybean crushing margins turned positive, palm-oil refining margins surprised us by dropping to USD17/tonne from USD29/tonne the quarter before. This was due to tight CPO supply and excess capacity.
Better crushing and sugar prospects next year
We lower our Palm & Laurics PBT margin to USD23/tonne for FY14E-16E from USD29, as the excess capacity is worse than expected. Accordingly, we cut EPS by 8-9%.
Still, we believe Wilmar will benefit from better soybean crushing conditions in China and sugar prices next year. We think the Chinese government’s growing regulation of shadow banking will force some speculative soybean traders out of the market, which will benefit domestic crushers. Wilmar should also be better positioned for a sugar upcycle next year following its acquisition of Shree Renuka and JV with Great Wall Food Stuff.
Reiterate BUY. We raise TP to SGD4.08 from SGD3.94 after incorporating our new EPS and rolling our 15x P/E (5-year mean) to FY15E.
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