UOB says historically, Wilmar’s earnings mix in 1H and 2H of the year usually comes in at 40%:60%. In 2017, the research team expects weaker 1Q17 results q-o-q as demand for consumer products is expected to be weaker post Chinese New Year as demand was shifted to Dec 16 as CNY took place in January this year vs February in 2016.
FFB production is also expected to be lower q-o-q in 1Q17 due to seasonality although this should be partly mitigated by marginally higher CPO prices. However, y-o-y performance should be much better on the back of higher FFB production y-o-y and higher CPO prices. The y-o-y increase in FFB production was due to yield recovering from the drought.
Contribution from sugar division could also be weaker. UOB says 1H is generally the low season for sugar as contribution from the milling segment will only kick in from 2H when the cane crushing season starts. This division’s performance will be supported by stable sales volume for merchandising & processing segment.
However, management indicated that soybean crushing margin is expected to remain good in 2017 and remain stable in 1Q17. This would partly mitigate the weak performance from other divisions. This division should see a stronger improvement in 2H16 on higher festive demand.
UOB is recommending investors enter at $3.20 with a target price of $3.50.
Shares of Wilmar are down 1 cent at $3.46.
