Period  4Q14 and FY14 for Wilmar International Ltd.

Actual vs. Expectations  FY14 core net profit* (CNP) of USD1.22b exceeded expectations, making up 108% of consensus’ forecast and 123% of ours on better-than-expected performance in most of its key segments – Palm & Laurics (P&L), Oilseeds & Grains (O&G), Consumer Products (CP) and Sugar.

Dividends  A dividend of SGD7.5¢ (USD6.1¢) was announced, above consensus and our expectations of USD4.9¢ and USD3.0¢, respectively.

Key Results Highlights  YoY, FY14 CNP declined 5% to USD1229m. Its O&G PBT declined 63% to USD87m due to weaker margins despite better sales volume. PBT also declined, by 31% to USD588m due to excess refining capacity in the palm oil downstream industry. However, Plantations PBT improved 41% to USD381m due to better production yield, depreciation in regional currencies and lower fertiliser cost.

 QoQ, Wilmar’s 4Q14 core net profit slipped 3% to USD416m. PBT grew 102% to USD218m but this was offset by Sugar division’s PBT falling 66% to USD54m. The Others segment’s PBT rose from near-zero to USD40m due to better performance in the Fertiliser business.

Outlook  The recently announced resumption of Malaysian CPO export duties in March bodes well for Wilmar’s downstream businesses. However, the structural issue of excess refining capacity in the palm oil downstream industry is likely to persist for at least the next 6-12 months, which may limit significant margin expansion.

Change to Forecasts We maintain our FY14-15E earnings pending PPB’s results in 2-3 weeks’ time. If all goes well for PPB’s non-Wilmar segments, PPB’s FY15E earnings could be raised by 1-2% on the back of Wilmar (18% stake), exceeding our expectations.

Rating Maintain MARKET PERFORM Although lower commodity prices may benefit Wilmar’s downstream businesses due to lower feedstock costs, margins may be capped by industry-wide overcapacity.

Valuation  We maintain our TP at RM15.00 based on an unchanged 19.5x Fwd PER on FY15E EPS of 76.9 sen. Our 19.5x Fwd. PER is based on the 3-year historical mean PER.

 However, if PPB’s FY15E earnings are revised up during the upcoming results, our TP could be raised to RM15.42 but our call remains as MARKET PERFORM.

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

Source: Kenanga