However, overall earnings improvement next year onwards is likely to be overshadowed by market worries over the ongoing cooking oil case in Indonesia, where the company is facing a potential hit of US$720 million. Meanwhile, Wilmar is facing pressure from lower refining margins for its tropical oil business.
"While we believe Wilmar can weather both these challenges well given its strong balance sheet and diverse food businesses, both factors may impact earnings growth and valuation re-rating in 2025," explains Simadiputra in his Sept 1 note.
For the whole of FY2025 and coming FY2026, Sim has lowered his earnings estimate for Wilmar by 23% and 24% respectively, on higher tax rate assumptions and weaker tropical oil refining margins.
Based on his FY2025 earnings assumptions of US$1.2 billion, which is similar to the preceding FY2024, Wilmar should be to stomach the potential maximum provisioning of US$720 million.
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"As the Indonesia cooking oil case is still ongoing, we have not factored in potential losses at this stage as Wilmar will not make any provisions before the verdict," says Simadiputra.
Meanwhile, Wilmar’s downstream initiatives should create a nimbler and more stable platform. As such, the company should be seeing improved profitability.
"As Wilmar broadens its downstream operations, it is building a business platform with stronger and more stable margins, like consumer companies. Given its size and long-term investment approach, this improvement likely materialises gradually," says Simadiputra.
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"Wilmar had demonstrated resilience during the pandemic and the Black Sea war, and we believe Wilmar should show similar resilience if China’s economy recovers," he adds.
For now, Simadiputra has downgraded this counter after he applied a valuation multiple of 11.7x earnings, which is largely in line with the company's historical 5-year average, thereby deriving the new target price of $3.
"While earnings are likely to remain weak ahead due to soft palm oil processing margins this year, but we see room for earnings improvement in FY2026 supported by Wilmar’s strong soy crushing business and recovery in demand for food products in China," says Simadiputra.
"If Wilmar avoids massive penalties from Indonesia’s cooking oil case, we believe Wilmar’s share price can catch up with its upstream palm oil peers for the rest of this year," he adds.
Wilmar shares changed hands at $2.94 as at 11.13 am, down 0.68%.
