Expect decent 4Q results
▊ Wilmar’s recent results briefing has not changed our views. We expect 4Q earnings to be driven by higher contributions from its plantations division. Future growth will be supported by on-going organic expansion in its core businesses and potential M&As. We currently project 4Q13 earnings to be below 3Q13’s due to lower sugar milling contribution. But its earnings may surprise on the upside if CPO prices sustain their uptrend. We maintain our earnings forecasts, SOP-based target price and Outperform rating. We believe a stronger-than-expected recovery in earnings and potential M&As can catalyse the stock.
At its 3Q results briefing, Wilmar said: 1) crush margins in China will stay strong as domestic soybean supplies remain tight due to the delayed arrivals of soybeans from South America; 2) the group is confident of sustaining the PBT margins achieved by its palm and laurics division as it has been successful in expanding its value- added palm product margins thanks to its large integrated palm operations; 3) its sugar milling segment may report lower contributions in 4Q13 as it has completed 80% of its crushing volumes up to end-3Q (the sugar merchandising division is however expected to sustain its improved performance); 4) better contribution can be expected from its plantation unit in 4Q13 due to higher production and selling prices; and 5) it plans to participate in Pertamina's call for biodiesel tender, which is scheduled to close on Monday and is positive on the biodiesel demand prospects in Indonesia.
What We Think
The overall guidance by the group was broadly in line with our projections. We are pleasantly surprised that the crush margins in China has remained strong in 4Q, the group has seen a good pick-up in production at its estates in recent months, and it will be one of the key beneficiaries of Indonesia's plan to raise domestic biodiesel usage as this will help secure demand for its biodiesel plants in the country.
What You Should Do
We continue to like Wilmar for its cheap valuations (P/BV of 1.1x against 5-year average of 1.9x), strong integrated agribusiness model, experienced management and growth prospects.
Publish date: 11/10/13