Period

4Q15 for Wilmar International Ltd.

Actual vs. Expectations

Wilmar’s FY15 core net profit* (CNP) of USD1.17b met both consensus estimates (USD1.14b) at 102% and our forecast (USD1.19b) at 98%.

Dividends

A final dividend of SGD5.5 cents (USD3.9 cents) was announced raising full-year dividend to SGD8.0 cents (USD5.7 cents), above our expected SGD4.9 cents (USD3.5 cents). This implies a payout ratio of 34%, higher than the 5-year historical average (25%).

In light of the rising payout trend, we up our forecast payout ratio to 35%, translating into FY16-17E DPS of SGD9.5-10.2 cents (USD6.8-7.3 cents).

Key Results Highlights

YoY, FY15 CNP declined 4% to USD1.17b as Tropical Oils (TO) PBT fell 44% to USD546m on weaker performance in both upstream and downstream divisions. This was due to lower CPO prices and weak demand, respectively. However, this was offset by Oilseeds & Grains (O&G) PBT doubling to USD690m on stable soybean crushing margin and higher Consumer Product volume.

QoQ, Wilmar’s 4Q15 CNP improved 4% as TO PBT rose 7% to USD112m. Segment margins improved to 3.1% from 2.5% as FFB yield improved 9% to 5.9 metric tons/hectare (MT/ha). Downstream margin also strengthened post the award of Biodiesel Quota to Wilmar by the Indonesian government. However, O&G PBT weakened 33% to USD164m on lower manufacturing (-6%) and consumer product (-16%) volume, likely due to softer Chinese demand.

Outlook

We think the TO segment should continue to improve gradually as upstream operations see improvement in CPO prices while downstream business margins should remain steady on a pickup in biodiesel purchases by the Indonesian government.

The O&G segment should continue to see stable crushing margins on ample soybean supply and lower expected supply of competing oils, including palm oil.

Change to Forecasts

No change to PPB’s FY15-16E earnings.

Wilmar’s FY16E CNP is maintained at USD1.24b as we introduce Wilmar’s FY17E CNP of USD1.33b.

Rating

Maintain MARKET PERFORM Upside arising from higher CPO prices and biodiesel tenders could be offset by weakening demand in China. Further devaluation of the Chinese Yuan (CNY) could also weaken O&G segment’s earnings.

Valuation

No change to our TP of RM16.92 based on 19.5x Fwd. PER applied to FY16E EPS of 86.7 sen. Our 19.5 Fwd. PER valuation is based on the 3-year historical mean valuation, justified by our neutral outlook on PPB and its associate Wilmar.

Risks

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

Weaker consumer sentiment may impact sales.

Source: Kenanga Research - 19 Feb 2016