Date: 18 October 2024
Broker: UOB Kay Hian
Company Overview
Wilmar International operates across the entire value chain of the agricultural commodity business. This includes origination, processing, merchandising, and manufacturing of a wide range of branded consumer products. The company is listed under the Consumer Staples sector with a market capitalization of S$20,663.4 million (US$15,718.4 million). The Bloomberg ticker for Wilmar is WIL SP, and it has 6,242.7 million shares issued.
Current Share Price and Performance
- Share Price: S$3.31
- Target Price: S$3.25
- Upside: -1.8%
- 52-week High/Low: S$3.72/S$3.00
Wilmar’s share price has shown varied performance over different time frames:
- 1 Month: 5.4%
- 3 Months: 4.7%
- 6 Months: -2.1%
- Year-to-Date (YTD): -7.3%
3Q24 Earnings Preview
Wilmar International is expected to release its 3Q24 executive financial summary on 30 October 2024. The company is projected to report a core net profit ranging between US$315 million and US$325 million, compared to US$323 million in 3Q23 and US$278 million in 2Q24. Historically, the third quarter is usually the strongest for Wilmar, but this year, the performance might remain flat due to several factors.
Factors Impacting 3Q24 Performance
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Food Products:
Improved Chinese economic sentiment is likely to boost sales volume of food products. However, intense competition and thin margins are expected, particularly during festive demand periods. The sales performance was lackluster during the Mid-Autumn Festival in China.
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Feed and Industrial Products:
Palm downstream processing margins have been affected by higher feedstock prices and weak demand for refined palm oil products. Although there was an uptick in soybean crushing margins quarter-on-quarter due to higher demand for soybean meal, the margins are still lower year-on-year. Sugar processing remains a strong performer, supported by rising sugar prices due to lower yields in Brazil caused by droughts and fires.
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Plantation and Sugar Mill:
The plantation segment is expected to see improved profit before tax, both year-on-year and quarter-on-quarter, driven by better average selling prices (ASPs) and increased sales volume. However, sugar milling performance might drag overall results due to operational delays caused by worker strikes in Australia, along with lower sugar yield due to wet weather in Queensland.
Potential Earnings Downside for 2024
Despite anticipated margin improvements, Wilmar’s 2024 earnings might underperform compared to expectations, mainly due to a slower-than-expected recovery in its China operations. Although China has introduced stimulus measures that could bolster consumer spending, the recovery in earnings is predicted to be gradual. Analysts plan to closely monitor the situation as the fourth quarter progresses.
Key Financial Metrics (2023 – 2026F)
- Net Turnover (2024F): US$75,330 million
- EBITDA (2024F): US$3,738 million
- Net Profit (2024F): US$1,606 million
- EPS (2024F): 25.1 US cents
- Dividend Yield (2024F): 4.5%
Strategic Developments
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Indonesian Government’s Export Levy Cut:
The Indonesian government reduced export levies on crude palm oil (CPO) and refined palm oil products effective 21 September 2024. This change, which includes flat rates of 7.5% for CPO and 4.5% for refined products, is expected to improve refining margins. Additionally, a 12% adjustment to the domestic price obligation (DPO) will likely reduce losses for volumes committed under Indonesia’s domestic market obligation (DMO).
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Adani-Wilmar (AWL) Stake Sale:
Wilmar stands to gain from a planned stake sale by the owners of Adani-Wilmar (AWL), who need to sell a 13% stake to comply with Indian regulations. If completed by February 2025, this sale could yield a one-off gain of US$329 million (equivalent to S$0.07 per share for Wilmar). Despite the potential gain, AWL’s impact on Wilmar’s balance sheet is relatively small.
Valuation and Recommendation
UOB Kay Hian maintains a “HOLD” rating for Wilmar with a target price of S$3.25. The valuation is based on a sum-of-the-parts (SOTP) approach:
- Food Products: 13x 2025F PE
- Feed & Industrial Products: 10x 2025F PE
- Plantations & Sugar Mills: 11x 2025F PE
The current blended 2025F PE is approximately 9x. Despite the HOLD rating, Wilmar could be an attractive entry point for yield-focused investors due to anticipated dividend improvements.
Share Price Catalysts
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Recovery in China Operations:
A faster-than-expected recovery in the Chinese market, where Yihai Kerry Arawana (YKA) remains the largest profit contributor, could significantly boost Wilmar’s earnings.
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Improved Tropical Oil Processing Margins:
Better margins, partly driven by policy changes in Indonesia, are expected to support Wilmar’s tropical oil segment performance from the fourth quarter of 2024 onwards.
