Despite seeing continuing underperformance from Wilmar International , UOB Kay Hian analysts Heidi Mo and Llelleythan Tan have kept their “hold” call, ahead of the company’s full year results on Feb 20.
However, with expectations of a modest rise in Chinese consumer sentiment to spend on food products and sustained palm oil refining profit margins, they have raised their target price for the stock from $3.00 to $3.18.
In their Feb 7 note, Mo and Tan say that Wilmar is likely to report a 4QFY2024 core net profit of between US$330 million ($447.8 million) and US$340 million, versus 3QFY2024’s US$208 million and, US$424 million recorded in 4QFY2023.
This will bring the company’s full-year core net profit to between US$1.14 billion and US$1.15 billion, which is 3-4% lower than their forecast and 9-10% lower than consensus expectation.
According to Mo and Tan, the company is set to enjoy higher crude palm oil (CPO) prices and improved processing margins. Besides lower fertiliser costs, Malaysian and Indonesian export levy hikes in Nov 2024 have helped drive up overall palm refining margins as well.
Soybean crushing margins also went up due to more demand for meals in wake of tariff threats.
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Wilmar’s China’s sugar division, on the other hand, is likely to see increased sales volumes but lower margins as increased spendings of the hotel, restaurant and catering (HoReCa) sector prompts for more medium & bulk pack sales.
Negative weather could also put a damper on expected earnings with delayed harvests in areas like Australia where heavy rain this quarter delayed sugar harvests.
There are, nonetheless, several positive attributes for this stock.
Last December, Wilmar announced the acquisition of a 31.06% stake in Adani Wilmar (AWL) from its joint venture partner Adani, which will bring Wilmar’s stake in this India-based business to 74.37% stake. “This acquisition is expected to significantly enhance Wilmar’s profitability in 2026”, suggest Mo and Tan.
They believe that Wilmar will no longer likely pay a special dividend as earlier expected as it channels resources to increase its stake in Adani Wilmar, investors will still enjoy a “decent” dividend yield. “We deem this as an opportunity to accumulate,” the analysts say.
In another positive sign, Kuok Khoon Hong, Wilmar’s chairman and CEO has continued with his regular share purchases. In 4QFY2024, he paid between $2.99 and $3.10 per share to buy back a total of 8.8 million, demonstrating the manager’s rather confident stance on Wilmar International’s outlook.
Due to “modest” improvement seen in consumer sentiment in China, Mo and Tan have raised their PE peg for the food ingredient business from 16x to 17x. They are however, keeping their peg PE of 11x for both feed & industrial products and plantations & sugar mills business segments.
The higher target price of $3.18 is based on a blended FY2025 PE of 9.8x.
