Wilmar?s FY16 CNP at USD972m beat expectations at 120% of consensus and 126% of our forecast due to stronger Tropical Oils and Sugar performance. Final dividend of SGD4.0� announced for full-year DPS of SGD6.5�, below our expected SGD7.7�. Wilmar?s FY17E CNP increased by 7%, for FY17-18E CNP of USD1.08- 1.24b. PPB FY16-17E CNP upped 19-6% to RM1.00-1.07b. Still MARKET PERFORM with higher TP of RM17.60.

4Q16 exceeds expectations. Wilmar?s FY16 Core Net Profit (CNP*) came in well above expectations, at 120% of consensus? USD813m and 126% of our USD777m forecast. This was due to improvements in Tropical Oils (TO) segment, which saw strong 4Q16 CPO and PK prices while full-year production at 3.82m MT slightly exceeded our 3.71m MT forecast. Sugar earnings also rose 49% on higher cane crushing volume and better sugar prices. A final dividend of SGD4.0� was announced for full-year DPS of SGD6.5�, below our expected SGD7.7�, implying a 30% pay-out ratio and dividend yield of 1.7%.

Boosted by Sugar & Tropical Oils. YoY, CNP softened 14% with Oilseeds & Grains (O&G) PBT dropping 64% on trading losses seen in 2Q16. However, TO segment PBT rose 34% thanks to better CPO prices (+22% YoY to RM2,650/metric ton (MT)) and robust downstream performance. Sugar PBT also rose 49% as noted above, while Others segment saw a 4.8x jump on reversal of investment losses and better Shipping and Fertiliser contributions. QoQ, CNP jumped 53% on a 57% rise in Sugar contributions on higher volumes and prices, while Associates PBT also improved 136% on better Goodman Fielder JV and China associate income. TO PBT also strengthened 9% on the back of FFB production improvement (+31%) and higher CPO prices (+12% QoQ to RM2,949/MT).

Tropical Oils contribution to be offset in 1H17. Looking ahead, we expect TO segment to see good short-term contributions as CPO prices remain quite supportive in early 1Q17, while Wilmar continues to benefit from the current Nov-2016 to Apr-2017 round of Indonesian biodiesel quotas. However, this could be offset by seasonal 1H weakness and easing sugar prices in the Sugar segment. Meanwhile, despite the typically soft 1H17 O&G outlook, management noted that the ?recent lifting of restrictions in China? for foreign companies should benefit its O&G businesses. Overall, we are neutral on Wilmar?s 1H17 performance.

FY17E CNP upped 7% to USD1.08b as we introduce FY18E CNP of USD1.24b. We upgrade our FY17E CNP expectations as we update our Sugar volume expectations and prices while updating our FY17-18E FFB growth estimate to 9-4% (from +5% in FY17E). PPB FY16-17E CNP upgraded accordingly, by 19-6% to RM1.00-1.07b.

Maintain MARKET PERFORM with higher TP: RM17.60 (from RM16.75) based on unchanged Fwd. PER of 19.5x applied to higher FY17E EPS of 84.2 sen (from 71.9 sen) after earnings adjustment. Our Fwd. PER of 19.5x is based on the 3-year historical mean PER, as we are overall neutral on both PPB?s core business and Wilmar?s outlook. While Tropical Oils should continue to see good near-term earnings, we expect seasonally weaker Sugar contributions in 1H17. Hence, we maintain our MARKET PERFORM call on PPB.

Source: Kenanga Research - 21 Feb 2017