Wilmar International

Kim Eng on 12 Nov 2012

Slightly above expectations. 3Q12 results were slightly above expectations, though we note the latter has been downgraded dramatically during the course of the year. Recurring net profit came in at USD388m (down 14% yoy), bringing 9M12 recurring net profit to USD766m against FY12E consensus of USD1.05b.
Positive contribution from oilseeds & grains. We believe the main variance came from a positive PBT of USD60.3m this quarter in its oilseeds & grains business, after 2 quarters of losses. However, we are cautious against reading too much into this, given that crush margins in China are still negative (albeit better qoq), implying profit was more likely to be opportunistic in nature.

Benefiting from Malaysian export tax. Palm & Laurics division showed a 6% yoy improvement in PBT, due to better margins. Following the recent tax changes in Malaysia, management shared that its margins in that country has started turning positive in September and will likely remain that way. Management remains confident overall in this segment, with 3m + tonnes of capacity in Indonesia to come in next year, noting that their strong global distribution network will help parlay any industry overcapacity.

Low CPO prices good for consumer division. The depressed prices for CPO helped its consumer production division register a healthy USD48.4m PBT (up >100% against USD14.4m for 3Q11) this quarter. However, PBT for its upstream Plantations & Palm Oil Mills division fell 11% yoy to USD116.6m, also fueled by lower production due to the lingering effects of dry weather. Excess CPO stockpile will likely depress prices going forward, though longer-term the gap with soy prices will likely compress.

Lull may not yet be over. Adjusted net-debt/ equity remains at 0.4x. The lull in Wilmar’s profitability may not be over, given that many of its businesses remain in a situation of industry excess-capacity. Growth would likely have to come from Oilseeds & grains may also dip back into another loss next quarter. We continue to peg our TP to 1x P/B, (1.5x NTA), which implies a TP of SGD2.75, maintain SELL.