Commodities has fallen over the past months. Given the slow down in China, I think the recovery will take some time gradually.
my 2 cents
Singapore: Wilmar International (WIL SP) BUY
Price/Tgt: S$3.05/3.60 Mkt Cap: US$13.5b Avg Val: US$19.1m Hi/Lo: S$3.42/2.52
3Q15: Strong Contribution From China Operations Amid Renminbi Depreciation
Wilmar reported 3Q15 core net profit of US$359m and 9M15 core net profit of US$816m, both of which were in line with our expectations. Oilseeds & grains reported better-than-expected results which compensated for the weaker contribution from the tropical oils and sugar divisions. 4Q15 could see better results on better palm downstream margins from the recent Indonesian biodiesel contract awards and improvement in sugar prices. Maintain BUY. Target price: S$3.60.
WHAT'S NEW
· Results within expectations. Wilmar International (Wilmar) reported 3Q15 core net profit of US$359m (+85.4% qoq, -16.5% yoy) and 9M15 core net profit of US$816m (+1.1% yoy). The results were in line with our core net profit estimate. Despite the significant depreciation in regional currencies against the US dollar, Wilmar saw a net forex loss of US$47.1m in 3Q15 (vs 3Q14: US$23.8m loss), which is relatively small for its high exposure to the ringgit, rupiah and renminbi thanks to its effective hedging.
· Strong growth in the oilseeds & grains segment. This segment recorded better-than-expected performance and brought in higher PBT margins. PBT margin also improved substantially, coming in at 5.0% in 3Q15 (vs 2.8% in 2Q15 and 3.8% in 3Q14). This was attributable to the improving margins in soybean crushing (higher utilisation rates) and consumer products (on lower raw material costs). Sales volume increased on festive demand.
3Q15 Results
| Year to 31 Dec | 3Q15 | yoy % | 9M15 | yoy % | Remarks |
| Dec (US$m) | chg | chg | |||
| Turnover | 10,649 | (7.6) | 29,345 | (9.2) | |
| PBT | 414 | (25.8) | 998 | 0.2 | |
| Tropical Oils | 105 | (45.9) | 433 | (35.7) | Weaker than expected due to weaker margins despite higher sales volume |
| Oilseeds and Grains | 244 | 38.6 | 526 | >100.0 | Better than expected on higher margins. Sales volume was in line with expectation. |
| Sugar | 109 | (31.4) | 3 | (96.1) | In line with expectation. Results partly dragged by AUD depreciation against US$. |
| Net Profit | 276 | (34.7) | 719 | (4.8) | Mark-to-market losses in investment securities. |
| Core Net Profit | 359 | (16.5) | 816 | 1.1 | In line with expectation |
Source: Wilmar International, UOB Kay Hian
EARNINGS REVISION/RISK
· No change to our earnings forecasts. We are expecting an EPS of 17.4 US cents, 20.7 US cents and 22.0 US cents for 2015-17 respectively
VALUATION/RECOMMENDATION
· Maintain BUY. We roll over valuation to 2016 and maintain our SOTP-based target price of S$3.60. Key assumptions include 15x PE for its palm upstream, consumer pack and sugar divisions, 13x PE for its palm refining and soybean crushing and 10x PE for the rest of its operations. Our SOTP target price translates into a blended 12.4x 2016F PE (5-year mean).
SEGMENTAL SALES VOLUME BREAKDOWN
| Year to 31 Dec | 3Q15 | qoq % chg | yoy % chg | 9M15 | yoy % chg |
| Pre-tax margin (US$/tonne) | |||||
| Oilseeds and Grains | 30.4 | 81.4 | 26.0 | 24.7 | >100.0 |
| Sugar | 23.2 | n.m. | (48.7) | 0.4 | (97.1) |
| Sales Volume ('000 tonnes) | |||||
| Tropical Oils | |||||
| - Manufacturing | 6,373 | 13.5 | (2.0) | 17,539 | (2.9) |
| Oilseeds and Grains | 8,008 | 15.8 | 25.2 | 21,281 | 17.0 |
| - Manufacturing | 6,635 | 12.2 | 31.8 | 17,377 | 22.3 |
| - Consumer Products | 1,373 | 37.0 | 0.9 | 3,904 | (2.1) |
| Sugar | 4,688 | >100.0 | 33.8 | 8,794 | 36.1 |
| - Milling | 1,940 | >100.0 | 19.5 | 2,294 | 24.2 |
| - Merchandising & Processing | 2,748 | 37.1 | 46.1 | 6,500 | 40.8 |
Source: Wilmar
Regards,
Singapore Research Team
____________________________________________________
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.
