WILMAR

Posted by hw0706 > 2012-05-23 08:15 | Report Abuse

Trading traits. As we have argued earlier, although Wilmar is positioned as an upstream/ midstream commodity firm, a lot of profitability hinges on this segment, where profitability behaves very much like a trading firm with no real visibility. This is especially so in a period of volatile commodity prices, which should be taken into account. This is not helped by the situation in China, where we estimate the soybean crushing industry is only running at a utilization rate of 50% Other divisions. The revised Indonesian export duty structure which came into effect in mid-September 2011 benefited its refineries in Indonesia but penalized its Malaysian refineries. Overall we expect neutral effects should the latter implement retaliatory tax rules. The consumer division grew pre-tax profit 37% yoy to US$50m, benefiting from price increases in China and the declining raw material prices, though this segment only accounted for 4% of Group profit last year. Expect de-rating, earnings risk. We expect further de-rating of the stock as the market recognizes its trading traits as well as its relative lack of growth prospects in existing businesses given its dominant market shares. We also see earnings risk, as we had warned earlier. Our estimates are lowered by 10-15% and our TP lowered to $3.60 based on 14x FY12F (1x PEG). Maintain SELL.

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1 comment(s). Last comment by hw0706 2012-05-23 13:30

hw0706

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Posted by hw0706 > 2012-05-23 13:30 | Report Abuse

Big hit to stock price
Wilmar International Limited’s (WIL) stock price took a big hit after
posting a dismal set of 1Q12 results on 10 May, when its core net
profit tumbled 51% YoY to US$206m, meeting just 12% of our FY12
forecast. From the previous day close of S$4.70, the stock closed 9%
lower on the day after its 1Q12 results announcement. And since
then, the stock has fallen by another 13% to hit a recent low of
S$3.71. We note that the stock has also fallen 37% from its 52-week
high of S$5.99.
Muted outlook remains a concern
As we had articulated in our 22 Feb report, the market seems to have
priced in a much stronger recovery which did not materialise. Instead,
WIL’s 1Q12 results suggest that the outlook for its prospects in China
continue to be quite muted, especially on the oilseeds crushing
segment. During its results briefing, management said it continues to
see surplus crushing capacity in China, which may take as long as
three years to clear, suggesting that depressed margins may persist
into the foreseeable future.
Maintain HOLD – valuations now decent
Following WIL’s 1Q12 results, we have already slashed our FY12 and
FY13 core net profit estimates, which are now 9% and 4%
respectively below consensus. Hence, there is little need to readjust
our numbers again. At its current price, we note that WIL is trading
around 12.2x consensus FY12 EPS, or around one standard deviation
below its 5-year mean. During the previous subprime financial crisis,
WIL’s PER fell to a low of 9.7x, or about -1.5x SD below its historical
mean. Given that the market is still adopting a more risk adverse
approach, we lower our fair value estimate from S$4.30 to S$3.87
(based on 13.5x PER versus 15x previously). Maintain HOLD as
valuations are not demanding.

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