- Soybean-crushing margins still biggest swing factor. December’s weakness to be made up by Oct/Nov’s strength, supporting decent 4Q margins.
- Less speculative trading to benefit real soybean crushers like Wilmar, long term.
- Still our top pick. Maintain BUY & SGD4.08 TP, at 15x PER. Catalysts from improving soybean-crushing margins & sugarprice rebound.
We believe soybean-crushing margins will remain Wilmar’s biggest earnings swing factor. December margins could be weak or even turn negative again owing to: 1) higher-than-usual US soybean shipments to China; 2) an 8% drop in soybean meal prices since mid-Nov; and 3) a narrowing premium for China’s domestic soybean prices over CBOT’s. That said, we believe Oct/Nov’s strength can lend support to decent 4Q margins, though 4Q’s margins may not be as good as 3Q’s.
Long-term outlook even better
We believe soybean crushing in China will continue to improve. China’s monthly soybean imports are key to watch. YoY growth has been slowing to single digit since the Jun 2014 Qingdao port scandal. We think this could be blamed on tighter credit for speculative commodity traders. Longer term, though, less speculative trading should benefit real soybean crushers like Wilmar.
Still sector choice
Wilmar is still our top sector pick. Other than improving soybean crushing margins, we think sugar prices could rebound from FY15E, contributing more. TP maintained at SGD4.08, its 5-year 15x PER average.
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