Singapore: Wilmar International (WIL SP) BUY
Price/Tgt: S$3.15/3.60 Mkt Cap: US$14.3b Avg Val: US$19.1m Hi/Lo: S$3.42/2.52
3Q15 Results Preview
3Q15 results preview: We are Expecting net profit of US$300m–350m (+79%qoq, -19% yoy) after adjusting our 2015 net profit forecasts down by 13% to US$1.12b. The earnings adjustments are to reflect lower palm & lauric sales volume and lower sugar margins. 3Q is usually the best earnings quarter as sugar's contribution bulk of its profit in this quarter as sugar milling season starts. Its China operations are expected to continue to do well in 3Q15. Maintain BUY. Target price: S$3.60.
WHAT'S NEW
· Earnings revision. We cut our earnings forecast by 13%, 6% and 7% for 2015, 2016 and 2017 respectively. The earnings cut is greater for 2015 to adjust for:
· Lower our sales volume forecast for palm downstream in 2015 to take into consideration lower biodiesel sales in Indonesia and exports, and
· Increased sugar merchandising & processing volume but lower margin.
· 3Q15 results preview: Expecting core net profit of US$300m-350m (vs 3Q14: US$429.7m, 2Q15: US$193.6m) post earnings adjustment. Wilmar is scheduled to release its 3Q15 results on 11 Nov 15 after the market closes. We are expecting a strong qoq earning growth on the positive contribution from the sugar division vs losses in the previous quarter and higher contribution from the oilseeds & grains division on higher crushing margin & volume, and higher contribution from consumer pack as 3Q15 sales is usually higher due to festive demand. In 3Q15, the reported net profit is likely to be lower due to investment mark-to-market losses as the overall equity market was lower vs 2Q15.
SUMAMRY OF OUR EXPECTATION FOR 3Q15
| 3Q14 | 2Q15 | 3Q15 Expectation | ||
| PBT margin (%) | ||||
| Tropical Oils | n.a. | 4.5 | Lower yoy & qoq due to lower CPO price and refining margins. | |
| PBT margin (US$/tonne) | ||||
| Oilseeds and Grains | 24.2 | 16.8 | Crushing margin: up qoq, flattish yoy. Consumer pack margins: up yoy and qoq | |
| Sugar | 45.2 | (16.3) | Yoy lower on lower sugar prices. Qoq back in profit as sugar milling season starts | |
| Sales Volume ('000 tonnes) | ||||
| Tropical Oils | ||||
| - Manufacturing | 6,500 | 5,614 | ||
| Oilseeds and Grains | 7,276 | 6,913 | ||
| - Manufacturing | 5,772 | 5,911 | Higher crushing volume as China imports more soybean. | |
| - Consumer Products | 1,504 | 1,002 | Better qoq. Adjustment to products classification will lead to lower volume yoy. | |
Source: Wilmar, UOB Kay Hian
EARNINGS REVISION/RISK
· Earnings downward revision. We cut our earnings forecast by 13%, 6% and 7% for 2015, 2016 and 2017 respectively. The earnings cut is greater for 2015 to adjust for: a) we lower our sales volume forecast for palm downstream in 2015 to take into consideration lower biodiesel sales in Indonesia and exports, and b) increased sugar merchandising & processing volume but lower margin.
· We are now expecting an EPS of 17.4 US cents, 20.7 US cents and 22.0 US cents for 2015, 2016 and 2017 respectively.
VALUATION/RECOMMENDATION
Maintain BUY. We maintain our SOTP-based target price of S$3.60. We have rolled over our SOTP valuation to 2016 and the key assumptions for the SOTP include 15x PE for its palm upstream, consumer pack and sugar divisions and 13x for its palm refining and soybean crushing and 10x for the rest of operations. The SOTP-based target price translates into a blended PE of 12.4x 2016F PE (5-year mean).
Regards,
Leow Huey Chuen
GL: 603-2147 1988/DL: 603- 2147 1990
Email: hueychuen@uobkayhian.com
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This transmission has been issued by a member of the UOB Kay Hian Group for the information of the addressee only and should not be reproduced and/or distributed to any other person. Each page attached hereto must be read in conjunction with any disclaimer which forms part of it. Unless otherwise stated, this transmission is neither an offer nor the solicitation of an offer to sell or purchase any investment. Its contents are based on information obtained from sources believed to be reliable but UOB Kay Hian Group makes no representation and accepts no responsibility or liability as to its completeness or accuracy.
This transmission has been issued by a member of the UOB Kay Hian Group for the information of the addressee only and should not be reproduced and/or distributed to any other person. Each page attached hereto must be read in conjunction with any disclaimer which forms part of it. Unless otherwise stated, this transmission is neither an offer nor the solicitation of an offer to sell or purchase any investment. Its comments are based on information obtained from sources believed to be reliable but UOB Kay Hian Group makes no representations and accepts no responsibility or liability as to its completeness or accuracy.
