Wilmar International Limited (WIL), after reporting a slightly lower-than-expected set of 2Q15 results on 5 Aug, saw its share price tumbling from an intraday high of S$3.20 on 6 Aug to an intraday low of S$2.51 on 8 Sep, or down about 22%; the stock has also fallen some 19% YTD. Besides the results, we suspect that the growing uncertainty of China’s economic growth and the recent devaluation of the CNY have also been weighing on the stock; this is not surprising since WIL derives a significant part of its revenue from China. However, some believe that concerns over China may be overdone. In addition, management remains cautiously optimistic that its 2H15 performance will be “satisfactory” as well; this as it expects crush margins to remain positive for the rest of the year; consumer products to continue its strong performance. Still, to account for the lower risk appetite of the market, we lower our peg to 12x blended FY15/FY16F EPS (versus 13x previously) and our fair value dips from S$3.43 to S$3.17. Maintain BUY.
Stock tumbled 22% after 2Q15 results
Wilmar International Limited (WIL), after reporting a slightly lower-than-expected set of 2Q15 results on 5 Aug, saw its share price tumbling from an intraday high of S$3.20 on 6 Aug to an intraday low of S$2.51 on 8 Sep, or down about 22%; the stock has also fallen some 19% YTD. Besides the results, we suspect that the growing uncertainty of China’s economic growth and the recent devaluation of the CNY have also been weighing on the stock; this is not surprising since WIL derives a significant part of its revenue from China.
How bad is China’s slowdown?
No doubt China’s economy has recently hit some rough spots - in Aug for example, industrial production rose 6.1% YoY versus Bloomberg’s 6.5% consensus growth; fixed asset investment rose 10.9%, versus street’s 11.2% consensus, and was also the slowest pace in 15 years; only retail sales met expectations, growing 10.8% versus 10.6% expected by the street. However, most economists have kept their GDP growth forecast for 2015, likely on expectation that the central government would announce more pump priming measures to sustain economic growth at 7% this year.
China concerns likely overdone
Even though some economists are looking at even slower GDP growth in 2016 and 2017 of around 6.5%, others believe that the slower pace of growth is in line with the country’s switch from an industrial-driven economy to a more of a services-driven one. In fact, the China Beige Book international recently noted that global investors have adopted an excessively negative view of China’s prospects, adding these investors have a history of over-reacting to problems in China .
2H15 likely to be satisfactory
Recall that management remains cautiously optimistic that its 2H15 performance will be “satisfactory” as well; this as it expects crush margins to remain positive for the rest of the year; consumer products to continue its strong performance. Still, to account for the lower risk appetite of the market, we lower our peg to 12x blended FY15/FY16F EPS (versus 13x previously) and our fair value dips from S$3.43 to S$3.17. Maintain BUY.
Wilmar International Limited (WIL), after reporting a slightly lower-than-expected set of 2Q15 results on 5 Aug, saw its share price tumbling from an intraday high of S$3.20 on 6 Aug to an intraday low of S$2.51 on 8 Sep, or down about 22%; the stock has also fallen some 19% YTD. Besides the results, we suspect that the growing uncertainty of China’s economic growth and the recent devaluation of the CNY have also been weighing on the stock; this is not surprising since WIL derives a significant part of its revenue from China.
How bad is China’s slowdown?
No doubt China’s economy has recently hit some rough spots - in Aug for example, industrial production rose 6.1% YoY versus Bloomberg’s 6.5% consensus growth; fixed asset investment rose 10.9%, versus street’s 11.2% consensus, and was also the slowest pace in 15 years; only retail sales met expectations, growing 10.8% versus 10.6% expected by the street. However, most economists have kept their GDP growth forecast for 2015, likely on expectation that the central government would announce more pump priming measures to sustain economic growth at 7% this year.
China concerns likely overdone
Even though some economists are looking at even slower GDP growth in 2016 and 2017 of around 6.5%, others believe that the slower pace of growth is in line with the country’s switch from an industrial-driven economy to a more of a services-driven one. In fact, the China Beige Book international recently noted that global investors have adopted an excessively negative view of China’s prospects, adding these investors have a history of over-reacting to problems in China .
2H15 likely to be satisfactory
Recall that management remains cautiously optimistic that its 2H15 performance will be “satisfactory” as well; this as it expects crush margins to remain positive for the rest of the year; consumer products to continue its strong performance. Still, to account for the lower risk appetite of the market, we lower our peg to 12x blended FY15/FY16F EPS (versus 13x previously) and our fair value dips from S$3.43 to S$3.17. Maintain BUY.
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