Period  2Q14 and 1H14 for Wilmar International Ltd.

Actual vs. Expectations Wilmar’s 1H14 core net profit* (CNP) of USD378m is below expectations as it makes up only 28% of consensus forecast of USD1.35b. It is also only 30% of our estimate of USD1.26b.

 Wilmar’s Oilseeds and Grains (OAG) division registered Loss Before Tax (LBT) of USD53m in 1H14 as crush margin turned negative in China soybean crushing industry. We gather that this is caused by excessive import of soybeans into China and lower demand of soybean meal because of bird flu.

Dividends  As expected, a dividend of SGD0.02 was announced.

Key Results Highlights YoY, Wilmar’s 1H14 CNP declined 32% to USD378m as OAG division registered LBT of USD53m (against 1H13 PBT of USD62m) due to reason stated above.

 QoQ, Wilmar’s 2Q14 core net profit declined 24% to USD163m as Palm & Laurics (P&L) division registered PBT decline of 38% to USD100m as refining margins were compressed due to tighter supply of CPO.

Outlook  The still weak PBT experienced at Wilmar’s OAG division is likely to affect PPB’s upcoming 1H14 result in end-August. However, Wilmar’s 2H14 results should improve due to lower oilseeds prices, less excessive import of soybeans into China and higher seasonal demand. Hence, we maintain our view that the OAG division margin is likely to return to positive for the full-year FY14, although it should be lower than our earlier estimate.

 Note that profit contribution from Wilmar accounted for 71% to 76% of PPB’s total PBT in the past three years.

Change to Forecasts PPB’s FY14E earnings reduced by 14% to RM742m while FY15E earnings are maintained. We have assumed lower margin for Wilmar’s OAG division at USD0.5 per MT (from USD6.5 per MT previously) for FY14E. FY15E earnings are maintained as we believe margin should return to the normal level.

Rating Maintain MARKET PERFORM

The lower-than-expected results from Wilmar are likely to limit PPB’s share price upside.

Valuation  Our TP is maintained at RM15.00 based on an unchanged Fwd. PER of 19.5x on FY15E EPS of 76.9 sen.

Risks to Our Call Lower-than-expected earnings from Wilmar or PPB’s own business divisions.

Source: Kenanga