Wilmar International's most recent earnings came in lower than expected but some analysts have upgraded their calls nonetheless, as they believe the prospects are improving.
For the six months ended Dec 31 2024, Wilmar suffered a 39.4% y-o-y earnings drop even though revenue was up.
"We believe this is the bottom. Margins are stabilising as input costs fall and the group gains scale advantages. Volumes across all business segments are improving as demand recovers and crush margins strengthens," says Thilan Wickramasinghe of Maybank Securities.
"We believe the expected acceleration of the Chinese government’s fiscal stimulus as well as sustained domestic demand in key markets should drive improved prospects for the group going forward," adds Wickramasinghe, who upgraded his call from "hold" to "buy" along with a higher target price of $4.05 from $3.17.
In their Feb 24 note, UOB Kay Hian's Heidi Mo and Llelleythan Tan Yi Rong note that Wilmar's palm oil refining is expected to remain challenging.
However, the company's management is cautiously optimistic about the oilseeds business and is expecting stronger y-o-y performance due to a record soybean crop production in Brazil in 2025.
They expect Wilmar's FY2025 core earnings to increase by 30% over FY2024, leading to an upgrade from "hold" to "buy" along with a target price of $3.45 from $3.18.
DBS Group Research, on its part, is similarly optimistic about this company's prospects. Given that it already has a relatively bullish target price of $3.80, its "buy" call remains, pegged to 12.1x FY2025 earnings, in line with its 5-year average PE multiple of 11.8x.
Wilmar was in the news recently, for what Maybank's Wickramasinghe calls a "known-unknown" risk. On Feb 17, media reports described a palm oil corruption case in Indonesia, with local prosecutors asking for a penalty of a 1 billion rupiah fine, plus restitution of 11.8 trillion rupiah.
"Of course, this could have a material impact on earnings if the group is found guilty. However, Wilmar's management notes that these are just charges for now and not a verdict. The group plans to vigorously contest them and has zero-tolerance policies for corrupt practices," adds Wickramasinghe.
RHB Bank Singapore is more restrained. It describes Wilmar's final dividend of 10 cents per share higher-than-expected. This payout will bring the full-year total to 16 cents, implying a yield of 5.2%. This level of payout translates into a payout ratio of 64%, an increase from 40-50% in the previous years.
Nonetheless, RHB is keeping its "neutral" call along with a slightly trimmed target price of $3, from $3.10 previously.
"While operating conditions are improving in China, Wilmar’s sugar and palm refining units continue to face challenges. Its valuation will likely be lower than that of its China-listed peers until earnings undergo a significant turnaround," says RHB.
Wilmar shares closed at $3.21 on Feb 28, up 0.94% for the day but down 3.6% in the past 12 months.
