Tuesday, July 30, 2013

Wilmar : Good support at S$3 (CS)

Wilmar
Maintain NEUTRAL
Price (25 Jul 13, S$) 3.16
TP (prev. TP S$) 3.73 (3.81)
Good support at S$3

● We have revised down our FY13 and FY14 earnings forecasts for Wilmar by 5%. We also reduce our target price to S$3.73 (from S$3.81).

● We believe 2Q 2013 was challenging for Wilmar (results to be announced on 12 August), given: (1) weak palm oil prices; (2) the bird flu scare has resulted in oilseed crush volumes falling by 10- 20% YoY; (3) palm refining margins are deteriorating with new capacities coming on stream; and (4) the Yellow Canopy syndrome in Australia could hit sugar content.


● There is good support at S$3 for Wilmar, given: (1) top management—Kuok Khoon Hong and Martua—bought Wilmar stocks at S$3.17-3.18; (2) share buybacks at S$3.00; and (3) Wilmar’s forward P/B of 0.9x is very close to the GFC low of 0.8x.

● Although we believe in the long-term prospects of Wilmar, it lacks positive catalysts in the short term, in our view. We maintain our NETURAL rating on Wilmar, but will review the stock after the 2Q results announcement.

Prospects for palm oil remain bearish
In our new report, Are we there yet? No, we maintain that palm oil prices will be under downward pressure for the remainder of 2013, because of the following: (1) We expect weaker demand over the next few months from China and India where edible oil inventories remain relatively high YoY. (2) Palm-biodiesel’s price advantage has diminished, as palm oil prices are almost at par with crude oil prices. (3) The palm oil-soyoil price gap has narrowed to US$160 per tonne vs US$400 in December 2012—this is no longer a demand catalyst. (4) We expect a bumper soybean crop in the US, a sharp rebound from the drought-ravaged crop in 2012. So far, soy crop conditions remain good in the US. (5) Palm oil production increases seasonally in 2H (potentially peaking in November), and inventories will traditionally increase during a high production period.

Wilmar: Good support at S$3
Cut profit estimates. We have cut our palm oil price assumptions to RM2,300 for 2013 (from RM2,600) and RM2,600 for 2014 (from RM2,800). Hence, we have cut our FY13 and FY14 earnings forecasts for Wilmar by 5%.

Challenging 2Q. We believe 2Q 2013 was challenging for Wilmar (results to be announced on 12 August) because:
• Plantations: Although we expect 2013 FFB production to increase by some 9% YoY, weaker palm oil prices should result in a much weaker profit contribution YoY.
Palm oil prices averaged RM2,320 in 2Q13, down 28% YoY from RM3,210 in 2Q12. For every RM100/t drop in palm oil prices, we estimate Wilmar’s plantation profit will fall 7% YoY.

• Oilseed: The bird flu scare has resulted in oilseed crush volumes falling by 10-20% YoY. Meal consumption appears to be normalising, hence prospects in 3Q should improve.

• Palm refining margins are deteriorating with new capacities coming on stream. In addition, the EU has imposed ‘anti-dumping’ tax on biodiesel from Indonesia. Wilmar is the largest biodiesel producer in Indonesia, and its sales could be hit.

• Sugar: The Yellow Canopy syndrome could hit sugar content.

Good support at S$3: There is good support at S$3 for Wilmar given: (1) top management—Kuok Khoon Hong and Martua—bought Wilmar stocks at S$3.17-3.18/share; (2) share buybacks at S$3.00; and (3) Wilmar’s forward P/B of 0.9x is very close to the GFC low of 0.8x.

Maintain NEUTRAL rating for now. Although we believe in the long-term prospects of Wilmar, it lacks positive catalysts in the short term. We maintain our NETURAL rating on Wilmar, but will review the rating post the 2Q results announcement.




Source/Extract/Excerpts/来源/转贴/摘录: Credit Suisse
Publish date: 29/07/13

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