Period

2Q15 for Wilmar International Ltd.

Actual vs. Expectations

Wilmar’s 1H15 core net profit* (CNP) of USD456.9m came in at 36% of consensus (USD1.27b) and 38% of our forecast (USD1.19b).

We deem the results as within expectation as historically the 1H results contributed up 35% of full-year earnings for the past three years. 1H earnings are typically weaker due to seasonal maintenance works in the Sugar segment.

Dividends

A dividend of SGD2.5¢ (USD1.8¢) was announced, as expected. Our FY15E dividend is SGD4.2¢ (USD3.0¢).

Key Results Highlights

YoY, Wilmar’s 1H15 CNP rose 21% to USD456.9m mainly riding on its Oilseeds & Grains (O&G) segment’s PBT recovering four-fold to USD282.0m on positive crushing margins seen particularly in China. However, Tropical Oils (TO) segment’s PBT declined 32% to USD328.1m mainly due to weak CPO prices (-15.4% to RM2,228/ metric tons (MT)) and slightly lower FFB production (-3.0% to 2.12m MT).

QoQ, Wilmar’s 2Q15 CNP declined 26% to USD193.6m mainly on lower O&G segment’s PBT (-30%) as higher manufacturing volume (+22.4% to 5.91m MT) failed to offset lower consumer products volume (-34.5% to 1.00m MT). TO segment’s PBT, however, improved 16% to USD176.0m as FFB production rose 22.3% to 1.16m MT.

Outlook

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

Change to Forecasts

We maintain our PPB FY15-16E CNP forecasts at RM970.5m-RM1036.6m for now, but we may review our TO segment’s margin expectations for Wilmar, pending clarity on the Indonesian levy impact at the coming analyst’s briefing on 6-Aug.

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

Rating

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

Valuation

We maintain our TP at RM16.50 based on an unchanged 19.5x Fwd PER on average FY15-16E EPS of 84.7 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 RM17.30 with no change to our call.

Risks to Our Call

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

Weaker consumer sentiment may impact sales

Source: Kenanga Research - 6 Aug 2015