Wilmar International (WIL SP): Anticipating A Better Year From China; Upgrade To BUY

Wilmar International (WIL SP): Anticipating A Better Year From China; Upgrade To BUY

WHAT’S NEW

Wilmar International (WIL SP) is poised for a better year in 2025, driven by positive trends emerging from China. The company’s core net profit is expected to improve, supported by increased sales volume from growing market share and better soybean crush margins. Notably, China’s contribution may surpass expectations due to robust volume growth. In light of these developments, the market appears to have already accounted for potential weakness from 2024. Consequently, the stock has been upgraded to BUY with a new target price of S$3.45.

Key Highlights and Strategic Insights:

1. Guidance and Market Share Growth:

   • Management forecasts continued market share gains in the food products segment, leveraging Wilmar’s reputation for high-quality and healthy food products.
   • The palm oil refining segment is expected to face ongoing challenges, while the oilseeds business is anticipated to perform better due to a record soybean crop in Brazil for 2025.
   • 2025 core net profit is forecasted to grow by 30% YoY.

2. Segmental Earnings Recalibration:

   • The company has revised its earnings forecasts, leading to an upgrade to BUY based on stronger-than-expected contributions from China.
   • The food products segment is expected to see improved earnings due to 36% YoY growth in profit before tax, excluding gains from the Luhua share-swap.

3. PE Multiples and Geopolitical Considerations:

   • Wilmar maintains a conservative stance on PE multiples, reflecting potential volatility from global geopolitical uncertainties.
   • A positive outlook hinges on the resolution of legal proceedings related to the 2021-22 Indonesian palm oil fraud claims, which the company has consistently refuted.

STOCK IMPACT: Key Drivers for Growth:

• Food Products:

  • Sales Volume Growth: Boosted by demand for affordable and healthier food brands.
  • Margin Improvement: Driven by enhanced factory efficiency while maintaining price competitiveness.

• Oilseeds and Grains:

  • Soybean Crushing: Expected to see margin improvements in 2025 due to tighter supply in China.
  • Palm Oil Processing: Margins likely to stay low due to stiff competition from cheaper soft oils.
  • Sugar Merchandising: Anticipated to be profitable, supported by higher selling prices.

• Plantation and Sugar Milling:

  • Upstream Plantation: Forecasted to achieve high single-digit growth in fresh fruit bunches (FFB) production.
  • Sugar Milling Division: Expected to perform better in 2025, aided by higher sugar prices and recovery from operational disruptions in 2024.

EARNINGS REVISION AND VALUATION:

• Revised Forecasts:
  • 2025/26 earnings are revised to US$1.52b/US$1.73b, down from US$1.58b/US$1.86b, reflecting recalibrated segmental expectations.
• Target Price Upgrade:
  • New Target Price: S$3.45 (previously S$3.18), attributed to enhanced earnings from China, warranting a higher valuation multiple.
• Dividend Declaration:
  • Wilmar has announced a final tax-exempted dividend of S$0.10/share, with the ex-date set for 15 May 2025.

SHARE PRICE CATALYSTS:

• Stronger Recovery in China: Potential positive impact on earnings and market sentiment due to a significant recovery in China, Wilmar’s largest profit contributor.
• Strategic Investments: New strategic investors in Adani Wilmar Limited (AWL) could enhance distribution channels and solidify AWL’s position in the Indian market.
• Resolution of Legal Issues: Clearing allegations from the 2021-22 Indonesian palm oil fraud could significantly boost investor confidence and improve the share price trajectory.

Conclusion:

Wilmar International is strategically positioned for growth, with a significant upside potential driven by robust contributions from China and strategic investments in its food products segment. The upgrade to BUY reflects a positive outlook on segmental earnings and market share growth, paving the way for a 12% upside to a target price of S$3.45.

Thank you