Wilmar’s Tropical Oils suffered on lower processing and downstream margins. Although sales for the segment were down 2% y-o-y, pretax profit fell by 51%.
RHB says Wilmar’s 3Q17 net profit came in slightly below its expectations while 9M17 core PATMI only met 60% of the house’s FY17 estimates as well as consensus’ estimates.
In a Tuesday report, RHB analyst Juliana Cai says Wilmar’s oilseeds and grains segment continued to deliver strong growth in both revenue and sales volume. Crush margins were also positive in 3Q17.
Tropical oils suffered on lower processing and downstream margins. Although sales for the segment were down 2% y-o-y, pretax profit fell by 51%.
“We think that downstream margins would continue to face pressure moving forward as Indonesia reduced its biofuel quota for Nov 2017-Apr 2018 by 8% y-o-y to 1.41 million tonnes,” says Cai.
Wilmar’s allocation however fell by 22% as the industry increased capacity, adds Cai. US’ implementation of more import duties on Indonesia’s biofuel may also negatively impact its exports.
Pretax profit for its sugar division’s fell 13% y-o-y. Management attributed this to the timing effect of the new Australian sugar marketing programme. Cai believes the overall result for this division would normalise by next quarter’s results once sugar inventories are sold.
RHB is maintaining its “neutral” on Wilmar International with a lower target price of $3.33.
“We trim our forecasts by 3% for FY17 and 1% for FY18-19 on the back of weaker tropical oils downstream margins,” says Cai, “We roll over our SOP valuations to FY18F and derived a new target price of $3.33.”
Meanwhile, OCBC analyst Low Pei Han says Wilmar’s results were within expectations as 9M17 revenue and net profit accounted for 74% and 70% of its full-year estimates, respectively.
Looking ahead, management expects the good performance in the Oilseeds & Grains segment to continue into 4Q17, with crush margins and volume likely to remain positive.
Performance of the other major business segments is also expected to be “satisfactory”.
“We tweak our estimates and roll over our valuations to FY18 earnings, and our FV estimate eases $3.51 from $3.66. Maintain “hold,” says Low.
Shares in Wilmar closed 14 cents lower at $3.18 or 17.7 times RHB’s forecast FY18 earnings.
