Tuesday, October 29, 2013

Wilmar: Downgrade to HOLD on valuation (OCBC)

Wilmar:
Fair value S$3.33
add: 12m dividend forecast S$0.06
versus: Current price S$3.45

Downgrade to HOLD on valuation
• Downgrade to HOLD
• No near-term re-rating catalyst
• Better 2H performance priced in

Wilmar International Limited’s (WIL) share price has done very well since we upgraded our rating to Buy on 6 Sep, rising as much as 14% to a recent high of S$3.50. As the current price is also 4% above our S$3.33 fair value (still based on 12.5x blended FY13/FY14F EPS), we downgrade our call to HOLD on valuation grounds. We also do not see any strong near-term catalysts to justify a re-rating before its 3Q13 results due 7 Nov.


Staged 14% rebound since upgrade
Wilmar International Limited’s (WIL) share price has done very well since we upgraded our rating to Buy on 6 Sep, rising as much as 14% to a recent high of S$3.50. The stock is also up as much as 16% from its recent S$3.02 low. As the current price is also 4% above our S$3.33 fair value (still based on 12.5x blended FY13/FY14F EPS), we downgrade our call to HOLD on valuation grounds. We also do not see any strong near-term catalysts to justify a re-rating before its 3Q13 results due 7 Nov.

Better 2H performance likely priced in
No doubt that WIL tends to perform better in the second half, aided by the seasonality of its sugar business in Australia. This as the outfit will typically reverse from a loss-making position to a highly profitable one. However, we believe that this is largely priced in. Note as well that sugar prices are still somewhat below the prices seen in 3Q12. At best, we are probably looking at comparable YoY performance. While CPO prices are generally off the lows, we note that the average price in 3Q13 is still about 2% lower QoQ and almost down 22% YoY.

Uncertainties remain in China
Over in China, while industrial production numbers improved somewhat (HSBC’s PMI reading for Oct came in at a 7-month high of 50.9), market watchers remain largely cautious about the sustainability of the growth as structural issues like inflation remain. Concerns that the Chinese government would further tighten liquidity to curb rising price pressures usually does not bode well for WIL as Beijing could also impose caps on prices of essential food items like cooking oil. The recent rise in short-term interest rates could also raise the cost of business for not only for WIL but also its customers.



Source/Extract/Excerpts/来源/转贴/摘录: OCBC-Research,
Publish date: 28/10/13

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