Price (07 Nov 13) S$3.45
Target price S$3.95
Steady Execution Marks 3Q
Citi's Take — 3Q13 PATMI of US$416m (+3% YoY, +90 % QoQ) resulted in 9M13 PATMI of US$950m (+22% YoY), accounting for 73% of Citi’s FY13 estimate, in line with the contribution ratio of ~70% for 9M results in the last 2 years. This result underscores Wilmar’s steady execution, with good volume growth across all its operating units (ex-plantations) and more importantly, maintaining profitability for oilseeds and keeping palm merchandising margins in the strong range. 9M13 capex levels declined 20% YoY, pointing to reduced gestation costs next 12-24 months.
Lead remains palm merchandizing — While volume growth was only +4% YoY (- 1% QoQ), seen as a good outcome given muted/negative CPO production volumes at planters across S.E Asia in 3Q13. Margins remained healthy at US$35/t in 3Q13 (US$36/t in 2Q13; margins between US$30-40/t seen as strong). This helped drive 17% YoY growth in pre-tax profits to US$212m (2Q13: US$225m, 1Q13: US$219m). Plantation earnings were weak (pretax profits of US$ 58m, -50%YoY), combination of poorer production (FFB -10% YoY, +5% QoQ) as well as weaker prices. Plantation earnings account for 10% of group pre-tax profits (the smallest contribution ratio), which helps differentiate Wilmar vs. pure plantation firms.
Oilseeds: 5th sequential quarter of profits — Volumes rose 7% YoY to 5.6mt, with margin at a good range of US$10/t, helped by shortages in the industry on S. America’s logistical challenge. This is its fifth successive quarter of positive margin (2Q13: US$3/t, 1Q13: US$10/t, 4Q12: US$9/t, 3Q12: US$12/t, 2Q12’s: -US$9/t).
Good performance in sugar — Pre-tax profits were a strong US$151m (+49% YoY). Sugar had good crush volumes in Australia (already 80% done vs 60% 3Q12) with good volume growth also recorded at its merchandising and processing units.
Implications — Investors underweight the resources-related segment may start to look at Wilmar given the steady recovery pattern it has charted at the oilseeds unit. Our TP of S$3.95 is derived based on 14x PE on the average earnings over fiveyears (FY11-15E). Buy maintained.
We value Wilmar at a target price of S$3.95, which is set at a PER of 14x average earnings over a 5-year cycle (2011-15E). We normalize earnings due to the typical volatility of a trading company, although we have seen some degree of normalization at Wilmar's key oilseeds unit. The 14x P/E is set at a 10% discount to the stock's mean of 16x considering the earnings volatility of the sector.
Downside risks to our target price include: 1) Trading risks from commodity prices and counterparty risks; 2) Lower-than-expected global CPO and soybean production; and 3) Slower end-demand levels for food & industrial products.
Publish date: 08/11/13