Review

• Wilmar’s FY23 results came in above expectations. Excluding exceptional items, the core net profit fell 35.3% YoY to USD1.6bn, accounting for 112% and 119% of our and consensus full-year estimates. All key business segments registered weaker performance in FY23.

• Food Products. FY23 PBT plunged 59.6% YoY to USD294.9mn, dragged by weaker margins as a result of high feedstock cost for the flour business during the 1H and absence of a gain on dilution of interest in Adani Wilmar Limited amounting to USD175.6mn, recognised in the previous year. Excluding the gain, this segment would have reported a drop of 46.8% YoY. Overall sales volume increased by 5.6% YoY to 30.7mn tonnes.

• Feed and Industrial Products. Despite higher sales volume (+10.2% YoY), FY23 PBT fell 40.6% YoY to USD926.7mn mainly due to weaker margins for its mid and downstream operations from the tropical oils business.

• Plantation and Sugar Milling. FY23 PBT decreased by 12.1% YoY to USD500.1mn mainly due to lower profit from the palm plantation business as a result of lower palm oil prices. FFB production remained flattish at 4.5mn tonnes (+0.4% YoY).

• Lastly, contributions from JV & Associates increased 16.8% to USD319.8mn, premised on higher contributions from investments in Europe.

• The group has proposed a final tax-exempt dividend of SGD0.110/share. This brings the total dividend to SGD0.170/share for FY23, which is similar to FY22.

Impact

• FY24 and FY25 earnings forecasts are revised upward slightly by 1.9% after updating the FY23 figures.

Outlook

• Management expects the tough operating conditions to continue into FY24.

• Tropical oil margins are expected to remain depressed; sugar milling margins will be affected by lower sugar prices and operating conditions in China are expected to remain challenging.

• Lower processing margins for mid and downstream operations have continued to impact upcoming results, in our view.

Valuation

• Our SOP valuation for Wilmar is revised downward to SGD4.00/share from SGD4.58/share after incorporating FY23 key variables (earnings & net debt) and attaching a lower valuation to the respective segments to be in line with peers. Maintain BUY.

Source: TA Research - 22 Feb 2024