Commendable 2Q13 results
▊ 1H13 core net profit formed 44% of our FY13 forecast and 41% of consensus, which we deem to be in line with expectations as we expect stronger contributions from sugar and palm oil in 2H. The oilseeds and grains division stayed profitable in 2Q13 despite the bird flu scare. Wilmar posted higher yoy refining margins in 2Q and appears unaffected by the rising palm processing capacity in Indonesia thus far. We keep our FY13-15 EPS estimates and SOP-based target price unchanged. We maintain our Outperform call, with the catalyst of improving FY13 earnings outlook.
2Q13 core net profit spiked 43% yoy, thanks to higher contributions from all divisions except the plantations and mills, fertiliser and associates divisions. Despite the bird flu and overcapacity concerns, the oilseeds and grains segment stayed in the black in 2Q13, thanks to the positive crushing margin. This is a sharp reversal from the loss in 2Q12, although 2Q13 crushing margin was weaker qoq. Refining margins improved 27% yoy to US$36.2/tonne, boosted by the group's investment in higher value-added downstream palm products. The consumer and sugar divisions’ 2Q13 performance improved yoy due to higher sales volumes and lower feedstock costs. However, 2Q13 plantation earnings were hit by lower CPO selling prices while fertiliser earnings were negatively affected by lower selling prices.
Good achievement in 2Q13
We think that the 2Q13 results are commendable, given the challenging operating environments for some of its key divisions and weaker CPO selling prices. The 87% yoy spike in its 2Q net profit also demonstrated that the group's business model is more resilient than that of upstream palm oil players when CPO prices are weak. Most pure upstream players posted sharp drops yoy in 2Q earnings.
The stock remains one of our top picks in the plantation sector as it trades at an attractive FY13 P/BV of 1.1x and is expected to deliver stronger 2H13 earnings.
Publish date: 06/08/13