Wilmar International (WIL SP): Signs of Spring
February 24, 2025
Broker: Maybank Research Pte Ltd
Wilmar International has recently shown signs of recovery following a disappointing 4Q24 earnings report. The company is expected to benefit from improving margins and stabilizing input costs, alongside an anticipated increase in demand driven by the Chinese government’s fiscal stimulus and sustained domestic demand in key markets. Analysts have upgraded the target price to SGD4.05, reflecting an optimistic earnings outlook and have moved their recommendation to BUY.
China’s Recovery Prospects
Wilmar’s Food Product segment has recorded a significant increase in volumes, rising by 11% year-on-year, compared to a mere 3% in 4Q23. This surge in demand correlates with China’s GDP growth of 5.4% in 4Q24, which surpassed expectations. Analysts predict this positive trend will continue into 1Q25. Furthermore, volumes for the Feed and Industrial Products segment have surged by 21% year-on-year, a notable increase from 4% in the previous quarter. The improvement in crush margins, attributed to a 4.4% decline in soybean prices in 4Q23, is also expected to persist, supported by record soybean production in Brazil.
Management indicates that Trump administration policies aimed at reducing US biofuel mandates may further decrease demand for soybeans, effectively driving prices lower, which is favorable for Chinese crush margins. Despite the ongoing US-China trade war being a potential risk, the focus on domestic consumption in Wilmar’s food staples is viewed as a buffer against such challenges.
Indonesian Court Case: A Known-Unknown Risk
Recent media reports concerning a corruption case related to Crude Palm Oil (CPO) in Indonesia highlight potential penalties sought by the Public Prosecutor, including a hefty IDR11.8 trillion in restitution and IDR1 billion in fines. While this poses a risk to Wilmar, management has clarified that these are merely charges at this time, and the company will contest them vigorously, adhering to a strict zero-tolerance policy towards corruption.
Financial Projections: Higher Earnings, Lower Capex
Wilmar has revised its FY25-26 expected net profit after tax (NPAT) upward by 4%-23%, reflecting a more favorable outlook for Chinese and regional demand recovery, coupled with decreasing input costs. Capital expenditure (capex) expectations have been reduced by 23%-30%, following the latest management guidance. This combination is poised to enhance free cash flow (FCF) generation.
The updated target price, derived from a blended discounted cash flow (DCF) model (WACC of 5.56%, 1% terminal growth rate) and peer price-to-earnings (P/E) ratios (target P/E lowered to 28x from 30x due to peer revaluation), has risen to SGD4.05 from SGD3.17. At this new target price, Wilmar trades at a P/E of 13x, below its long-term average of 15x, prompting the upgrade to BUY.
Company Overview and Key Statistics
Wilmar International Ltd. is an investment holding company engaged in processing, merchandising, and distribution of agricultural products. Key statistics include:
- Share Price: SGD 3.08
- 12m Price Target: SGD 4.05 (+31%)
- Previous Price Target: SGD 3.17
- Market Capitalization: USD 14.4 billion
- Issued Shares: 6,243 million
Major shareholders include Archer-Daniels-Midland Co. (22.5%), PPB Group Bhd. (18.8%), and Longhlin Asia Ltd. (8.9%).
Price Performance and Market Metrics
Over the past year, Wilmar’s stock has shown fluctuations, with a high of SGD 3.54 and a low of SGD 3.00. The average turnover over three months stands at USD 23.4 million, with a free float percentage of 10.4%.
Financial Metrics and Estimates
Wilmar’s financial forecasts show a gradual recovery, with expected revenue growth from USD 67,155 million in FY23 to USD 78,716 million in FY25, and EBITDA anticipated to rise from USD 3,645 million to USD 4,076 million. Core net profit is projected to increase from USD 1,525 million to USD 1,405 million in FY25 and further to USD 1,713 million in FY26.
Key metrics indicate that Wilmar’s core P/E is expected to decrease from 11.4x in FY23 to 10.5x in FY25, while the net dividend yield is projected to increase to 7.7% in FY25.
Conclusion: Strategic Positioning for Future Growth
Wilmar International is strategically positioned to capitalize on improving market conditions and demand recovery in Asia, particularly China. By focusing on cost management and maintaining a robust product offering in essential food items, Wilmar is set to navigate potential risks effectively. The upgraded target price and BUY recommendation reflect a strong belief in the company’s recovery and growth trajectory.
