Friday, February 28, 2014

Wilmar International - Run-of-the-mill quarter ahead (CIMB)

Wilmar International -
Current S$3.37
Target S$4.16
Run-of-the-mill quarter ahead

Wilmar's results briefing left us feeling more positive on its investment in Shree Renuka and the outlook for its palm and laurics division. However, this is offset by its guidance of weaker crush margins qoq as meal demand has softened in China. Overall, we expect 1Q14 earnings to soften qoq due to lower contributions from oilseeds & grains and sugar milling. We maintain our SOP-based target price and Add rating. Stronger-than-expected earnings recovery and potential M&As are the main potential re-rating catalysts.

What Happened
The key takeaways from Wilmar's results briefing are 1) soybean crush margin has declined from the 4Q13 level due to weaker meal demand post CNY and the bird flu issue, 2) it remains positive on its palm and laurics division due to its investment in higher value-added products, 3) it has secured all of Pertamina's second biodiesel tender award of 1.14m kl and remains positive on biodiesel demand prospects in Indonesia, 4) it clarified that it has not stopped sourcing CPO from Sarawak and will continue to support its suppliers as they move towards more sustainable sourcing, and 5) it is investing in Shree Renuka Sugar (SRS) to gain exposure to the sugar market in India and Brazil and to complement its existing large refining, crushing and oleochemical operations in India. The group plans to use its resources to help SRS to improve its Brazilian sugar operations and reduce its interest costs.

What We Think
We are turning more positive on Wilmar's investment in SRS after hearing Wilmar list the potential synergies from the investment. The clarification that it is still buying palm oil from Sarawak players will ease concerns that it may report slower sales volume growth for its palm and laurics division. We are also heartened by the news that it has secured 1.14m kl of biodiesel demand in Indonesia and that the cost of production at its estates is projected to be lower in 2014. However, this is offset by the group's view that it will be difficult to consistently produce the strong crush margin seen in 4Q, which was driven by the confluence of positive factors.

What You Should Do
We continue to like the stock due to its attractive valuations (P/BV of 1.2x against 5-year average of 1.9x) and long-term growth prospects.

Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 23/02/14

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