We attended Wilmar’s 1Q15 Analyst Briefing which was well attended by about 50 attendees. We returned reassured on the near-mid-term prospects of Wilmar due to: (i) normalising crush margins in its Oilseeds and Grains (O&G) segment, and (ii) improving downstream outlook due to the recent Indonesian levy decision. However, lacklustre FFB growth could limit upside. We adjusted both PPB’s FY15- FY16E estimates higher by 4.0% to RM0.97b-RM1.02b to reflect higher than expected contribution from Wilmar. Maintain our MARKET PERFORM call on PPB with a higher TP of RM16.00 (from RM15.42) based on an unchanged Fwd. PER of 19.5x on higher FY15E EPS of 82.1 sen.

Oilseed and Grains (O&G) margins normalising. We gather that the YoY improvement in the O&G segment was due to a recovery in soybean crush margins in China. Management indicated that due to lower soybean imports into China by financial traders and cheaper soybean prices, crush margins should remain positive in the near-tomid- term. As we concur with management’s outlook, we nudge up both our FY15-16E O&G segment PBT margins to 1.0% from 0.6%- 0.8%, respectively.

Expecting better downstream performance. Levies of USD50/MT and USD30/MT on CPO and processed palm oil (PPO) were recently imposed, respectively, in Indonesia. The proceeds of the tax will be used to fund Indonesia’s biodiesel subsidies. We are positive on the move which we think will improve Wilmar’s biodiesel plants utilisation and lower CPO feedstock prices for its downstream segments. Thus, we adjust up both our FY15-16E expected downstream PBT margin to 3.4% (from 3.0%).

Tempered by flat FFB growth. We gather that poor weather conditions in the last few months have dampened output from the Malaysian plantations and could limit FFB growth in Indonesia. Given management’s cautious outlook on its Tropical Oils segment, we trim our FY15E FFB growth to 1.0% from 3.5%, which is below the plantation sector average of 5.0%.

Upgrade PPB’s FY15-16E earnings estimates to RM0.97b- RM1.02b. We tweak our Wilmar forecasts to account for improving O&G and plantation downstream margins but poorer FFB growth prospects, resulting in slightly higher FY15-16E earnings of USD1.20b-USD1.27b (from USD1.14b-USD1.21b). As a result, we revise our PPB earnings estimate up by 4.0% to RM0.97b-RM1.02b (from RM0.94b-RM0.99b), reflecting the higher expected contribution from Wilmar.

Maintain MARKET PERFORM on PPB with higher TP of RM16.00 (from RM15.42) based on an unchanged Fwd. PER of 19.5x on higher FY15E EPS of 82.1 sen (from 79.1 sen). Our 19.5x Fwd. PER is based on the 3-year historical mean PER. We maintain our MARKET PERFORM call on PPB as we think the improving outlook in Wilmar’s O&G and plantation downstream segment could be limited by its uninspiring plantation upstream and Sugar segments. Risks to our call are lower-than-expected earnings from Wilmar or PPB’s core business divisions.

Source: Kenanga Research - 11 May 2015