Wilmar International

OCBC on 22 May 2012

Wilmar International Limited’s (WIL) stock price took a big hit after posting a dismal set of 1Q12 results on 10 May. From the previous day close of S$4.70, the stock closed 9% lower on the day after its 1Q12 results announcement. And since then, the stock has fallen by another 13% to hit a recent low of S$3.71. We note that the stock has also fallen 37% from its 52-week high of S$5.99. At its current price, we note that WIL is trading around 12.2x consensus FY12 EPS, or around one standard deviation below its 5-year mean. During the previous subprime financial crisis, WIL’s PER fell to a low of 9.7x, or about -1.5x SD below its historical mean. Given that the market is still adopting a more risk adverse approach, we lower our fair value estimate from S$4.30 to S$3.87 (based on 13.5x PER versus 15x previously). Maintain HOLD as valuations are not demanding.

Big hit to stock price
Wilmar International Limited’s (WIL) stock price took a big hit after posting a dismal set of 1Q12 results on 10 May, when its core net profit tumbled 51% YoY to US$206m, meeting just 12% of our FY12 forecast. From the previous day close of S$4.70, the stock closed 9% lower on the day after its 1Q12 results announcement. And since then, the stock has fallen by another 13% to hit a recent low of S$3.71. We note that the stock has also fallen 37% from its 52-week high of S$5.99.

Muted outlook remains a concern
As we had articulated in our 22 Feb report, the market seems to have priced in a much stronger recovery which did not materialise. Instead, WIL’s 1Q12 results suggest that the outlook for its prospects in China continue to be quite muted, especially on the oilseeds crushing segment. During its results briefing, management said it continues to see surplus crushing capacity in China, which may take as long as three years to clear, suggesting that depressed margins may persist into the foreseeable future.

Maintain HOLD – valuations now decent
Following WIL’s 1Q12 results, we have already slashed our FY12 and FY13 core net profit estimates, which are now 9% and 4% respectively below consensus. Hence, there is little need to readjust our numbers again. At its current price, we note that WIL is trading around 12.2x consensus FY12 EPS, or around one standard deviation below its 5-year mean. During the previous subprime financial crisis, WIL’s PER fell to a low of 9.7x, or about -1.5x SD below its historical mean. Given that the market is still adopting a more risk adverse approach, we lower our fair value estimate from S$4.30 to S$3.87 (based on 13.5x PER versus 15x previously). Maintain HOLD as valuations are not demanding.