INVESTMENT HIGHLIGHTS

• Wilmar 1QFY18 earnings is below expectation

• 1QFY18 core net profit declined 37% yoy

• Wilmar China soybean crushing operation may be affected if China impose tariffs on US soybean

• PPB earnings estimate is reduced

• 1-for-5 bonus issue

• Downgrade to NEUTRAL with TP of RM19.40

Wilmar 1QFY18 earnings is below expectation. Wilmar’s 1QFY18 CNP of USD183.5m is below expectation as it makes up only 14% of ours and 15% of consensus core earnings forecast. Key variance is lower than expected crush margin in the OAG segment. As expected, no dividend in announced.

1QFY18 core net profit declined 37% yoy. Tropical Oils segment PBT declined 34% yoy to USD102m due to lower CPO price and lower downstream margins. OAG segment registered PBT of USD173m (down 17% yoy) due to weaker crush margins.

Wilmar China soybean crushing operation may be affected if China imposes tariffs on US soybean. Wilmar mentioned that the prospect of China imposing import tariffs on US soybeans will result in soybean prices staying volatile for the coming quarters. It further elaborate that prolonged standoff between China and the US would affect the utilization of its crushing plants. Having said that, these factors should moderate the impact: i) better performance from Wilmar’s flour and rice businesses and ii) improved performance from Tropical Oils segment due to higher production yields and margin.

PPB earnings estimate is reduced. FY18 CNP estimate is reduced by 8% to RM1.04b. We also trim our FY19 CNP estimate by 7% to RM1.07b. We have imputed lower crush margin in Wilmar OAG segment.

1-for-5 bonus issue for PPB. PPB Group Berhad (PPB) has announced that it is proposing to undertake a bonus issue of 237.1m shares with entitlement date to be determined later. Justification for bonus issue is to enhance the marketability and trading liquidity of PPB shares. Expected completion date is by 3Q2018.

Source: MIDF Research - 14 May 2018