Period

1Q15 for Wilmar International Ltd.

Actual vs. Expectations

Wilmar’s 1Q15 core net profit* (CNP) of USD263.0m met expectations, making up 20.0% of consensus forecast (USD1.32b) and 23.0% of ours (USD1.14b).

Dividends

No dividend was announced, as expected.

Key Results Highlights

Due to a change in reporting segments, some segment data are unavailable for 4Q14. For details, see the Segmental Breakdown table on Page 2.

YoY, Wilmar’s 1Q15 CNP improved 22.0% to USD263.0m mainly due to an 11.0x improvement in its Oilseeds & Grains (O&G) segment to USD166.0m as crushing margins saw strong recovery. This was limited by Tropical Oils (TO) segment’s PBT, which declined 44.0% to USD152.0m due to weak FFB production (-12.0% YoY to 397.0k MT) and CPO prices (-16.0% YoY to RM2,263.0/MT).

QoQ, Wilmar’s 1Q15 CNP dropped 36.0% due to Sugar segment registering LBT of USD68.0m (- 227.0%) on seasonal weakness and scheduled plant maintenance. TO segment’s PBT dropped 49.0% on poor production and lower CPO prices (- 6.0% QoQ). This was partly offset by O&G segment’s PBT, which improved 41.0% QoQ.

Outlook

The recently confirmed Indonesian levy on CPO exports bodes well for Wilmar’s downstream businesses. However, margin improvement could be constrained by on-going overcapacity in the downstream industry.

Change to Forecasts

We maintain our FY14-15E CNP forecasts at RM937.0m-RM988.0m for now, while we may review our forecast for Wilmar’s TO segment pending clarification of the Indonesian levy impact at the upcoming analyst’s briefing on 8-May.

We estimate that a positive impact on downstream margin of between 0.5-1.0% going forward could increase PPB’s earnings estimate by up to 5.0- 10.0%.

Rating

Maintain MARKET PERFORM The potential margin improvement in downstream businesses could be limited by industry-wide overcapacity and weak prices of palm products.

Valuation

We maintain our TP at RM15.42 based on an unchanged 19.5x Fwd PER on FY15E EPS of 79.1 sen. Our 19.5x Fwd. PER is based on the 3-year historical mean PER.

However, if PPB’s FY15E earnings are revised up 5.0% post-briefing, our TP could be raised up to RM16.16 with no change to our call.

Risks to Our Call

Lower-than-expected earnings from Wilmar or PPB’s own business divisions.

Source: Kenanga Research - 8 May 2015