Review

• Wilmar’s 1HFY23 results came in below expectations. Excluding exceptional items, the core net profit plunged 50.0% YoY to USD577.2mn on the back of a 10.0% decline in revenue. The weaker-than-expected performance was mainly due to the lower contribution from the Food Products and Feed & Industrial Products segments.

• Food Products. Despite higher sales volume, 1HFY23 PBT declined 84.1% YoY to USD82.7mn, dragged by unfavourable sales mix, lower sales from consumer products and weaker margins as a result of high feedstock costs for the flour business. Excluding the gain on dilution of interest in Adani Wilmar Limited amounting to USD175.6mn recorded last year, this segment would have reported a 76.1% decline in PBT.

• Feed and Industrial Products. 1HFY23 PBT declined 20.7% YoY to USD399mn, dragged by much lower margins for the mid and downstream tropical oils operations, weak crush margins as well as elevated soybean prices during the 2Q. The weak results were partially offset by good contributions from both Sugar merchandising and Shipping operations.

• Plantation and Sugar Milling. 1HFY23 PBT plunged to USD62.9mn (- 85.6% YoY), mainly due to weaker performance in the palm plantation and sugar milling businesses as well as losses in fertiliser operations. Meanwhile, FFB production also decreased by 2% YoY to 2.1mn tonnes.

• Lastly, contributions from JV & Associates increased by 29.9% to USD198.9mn, premised on higher contributions from investments in Europe.

• The group declared a higher interim dividend of SGD0.06/share, which is similar to last year.

Impact

• FY23 and FY24 earnings forecasts were revised downward by 29.3% and 13.2%, respectively, after incorporating lower margins and finance costs. We also take this opportunity to introduce our FY25 earnings forecast of USD1,767.7mn.

Outlook

• According to management, the economic slowdown and the corrections in commodity prices as well as lower processing margins for mid and downstream operations have impacted the 1HFY23 results.

• Meanwhile, management guided that its new businesses like condiments, Food Park and Central Kitchen projects will become significant contributors to the Group’s operations in future.

• Overall, management expects a better 2H performance compared to 1H.

Valuation

• Maintain BUY on Wilmar with a revised target price of SGD4.58/share, based on sum-of-the-parts valuation.

Source: TA Research - 14 Aug 2023