Stronger 4Q crushing margins
▊ Wilmar's FY13 core net profit was 1% below consensus but 2% above our estimate due mainly to lower effective tax rate. Earnings improved for all key divisions other than plantations and fertiliser. A final dividend of S$0.055 was declared, bringing the total dividend to S$0.08. We are neutral on the group’s announcement that it plans to invest US$200m in Shree Renuka Sugar. We fine-tune our earnings forecasts and raise our SOP-based target price slightly to S$4.16. Wilmar remains an Add as we believe that the market has not fully priced in the potential growth of its maturing new business and investments in higher-margin products. It is also attractive from a valuation standpoint as the stock trades at 1.1x FY14 P/BV, compared to its historical average of 1.9x.
Key results highlights
The final core net profit (excluding non-operating items) rose by 12% yoy, thanks to better performances from most of its key divisions other than plantations (due to a lower CPO price) and associates (due to weaker contributions from its China associates). 4Q core net profit fell by 12% yoy due mainly to weaker sugar, plantation and associates contributions.
Main surprises against our forecast
4Q palm and laurics profit margin remained firm and was better than our expectation. Pretax margin per tonne was unchanged at US$30 per tonne, which shows that the group's move into higher-value-added palm products has been successful in offsetting the weaker refining margins in Indonesia. Oilseeds and grains earnings were better than expected due to the sharp recovery in 4Q crushing margins to US$19.8 per tonne, thanks to tighter soybean supply in China. However, the sugar division was below our forecast due to weaker sugar prices while the plantation earnings were impacted by weaker-than-expected FFB yields.
Outlook for FY14
We expect Wilmar's net profit to grow by 9% in 2014, driven mainly by higher oilseeds and grains, plantation and sugar contributions. We project better crushing margins as we expect some industry players to scale down their expansion plans. Plantation earnings will benefit from higher CPO prices, and the sugar business will gain from higher merchandising activities.
Publish date: 21/02/14