Review

• Wilmar’s 1HFY24 results performance came in below expectations. The deviation was primarily due to weaker-than-expected contributions from joint ventures and associates, as well as lower margins.

• Excluding exceptional items, 1H24 core net profit rose by 5.0% YoY to USD606.3mn, despite a 4.9% decrease in revenue. The improved performance was driven by higher contributions from both the Feed and Industrial Products and Food Products segments.

• Food Products. PBT for 1HFY24 soared 76.9% YoY to USD146.3mn, driven by 7.3% increase in sales volume and reduced feedstock costs resulted from lower commodity prices.

• Feed and Industrial Products. 1HFY24 PBT rose 33.9% YoY to USD534mn, driven by increased sales volume and improved crushing margins in 2QFY24. Overall sales volume grew by 8.3% to 30.2mn tonnes in 1HFY24. The Sugar segment also reported a significant increase in sales volume, up 22.5% to 6.5mn tonnes,

• Plantation and Sugar Milling. 1HFY24 PBT declined by 14.4% YoY to USD53.9mn, primarily due to weaker performance in the sugar milling business, which was affected by a temporary change in ethanol production policy in India. However, the palm plantation business performed better, benefiting from lower plantation costs.

• Lastly, contributions from JV & Associates declined by 58.2% to USD83.2mn, mainly due to lower contributions from the Group’s JVs and associates in Europe, China, and Africa.

• The group declared an interim dividend of SGD0.06/share, which was similar to last year.

Impact

• Earnings forecasts for FY24 and FY25 have been revised downward by 20.5% and 7.0%, respectively, after incorporating lower margins and reduced contribution from JVs and associates.

Outlook

• According to management, refining margins for tropical oils are expected to remain challenging, while the demand for soybean meal products as well as margins are anticipated to improve due to lower soybean prices.

• However, we understand that the crushing margin in China has been negative since mid-June and is currently trading at CNY477/tonne. The prolonged negative crushing margins are expected to impact the group's earnings in 2H24 as well.

• Overall, management remains cautiously optimistic about the performance for 2H24.

Valuation

• Maintain BUY on Wilmar with a revised target price of SGD3.56/share (previously SGD4.16), based on sum-of-the-parts valuation.

Source: TA Research - 14 Aug 2024