Period     2Q13 for Wilmar International Ltd.

Actual vs. Expectations   Wilmar’s 1H13 core net profit* of USD559m is broadly in line with consensus expectation. Although it only made up 41% of the consensus’ FY13 forecast of USD1.35b, we expect a stronger 2H13. Note that Wilmar’s sugar milling division usually commences its milling activity in June (due to seasonal reason), hence it is normal for the division to incur losses in 1H of the year due to plant maintenance.

Dividends    As expected, an interim single tier dividend of 2.5 sen was announced.

Key Results Highlights   YoY, Core net profit in 1H13 increased 48% to USD559m due to the turnaround in its Oilseeds and Grains (“OAG”) division, which registered PBT of USD62m (Loss Before Tax of USD93m last year). We believe Wilmar China’s crushing margin remained positive due to lower cost of imported beans and better local product prices.

QoQ, 2Q13 core net profit declined 22% to USD245m as OAG division’s PBT tumbled 68% to USD15m. We believe it was caused by the China bird flu scare which affected demand for soybean meal as feedstock for chicken. However, the situation should improve in 2H13 as the China bird flu concern subsides.

Outlook    PPB’s 2Q13 results (due 26-Aug) should show significant improvement, YoY. However, we reckon that most of the good news had already been priced in with the share price gaining 29% YTD (against FBMKLCI’s 6%).

Change to Forecasts   Maintain FY13E-FY14E earnings of RM851mRM862m.

Rating  Downgrade to MARKET PERFORM

Valuation     Maintain our TP of RM15.20 based on a Fwd. PER of 20.9x on its FY14E EPS. The share price has fared well and at our TP, there is limited upside, thus our downgrade to MARKET PERFORM from OUTPERFORM. 

Risks    Lower than expected margins for Wilmar’s OAG division.

Source: Kenanga