Excerpts from UOBKayHian report

Wilmar International (SGX: F34)

• Wilmar ’s 1Q24 results came in below expectations due to lower-than-expected margins from feed & industrial products. The weakness is attributable to weaker-than-expected margins despite the higher sales volume.
• Note that the China food products segment has continued to improve, with stronger sales volume and better margins.
• We expect earnings to improve from 2Q24 onwards, especially its feed & industrial products segment.

Maintain HOLD. Target Price: S$3.35

Results below expectations

Wilmar International (Wilmar) reported core net profit of US$328m (-51% qoq, -14% yoy) for 1Q24, contributing 18% of our full-year forecast.

This is below our expectations with our 1Q24 core net profit estimates of US$390-420m. The deviation was mainly due to lower-than-expected margins from Feed & Industrial Products.

The weakness is attributable to weaker-than-expected margin despite higher sales volume.

Core net profit margin down yoy despite marginal improvement at EBITDA level.

Lower cost of raw materials led to marginal improvement of EBITDA margin. However, core net profit was down yoy and qoq, likely due to the reduced profit sharing from its joint ventures and associates from its investment in China.

1Q24 earnings lower qoq and yoy

• Earnings were lower qoq in 1Q24 mainly due to weaker contributions from the feed and industrial products segment. This was due to:
• Challenging palm oil processing margin. Palm downstream processing continues to struggle with low to negative processing margins amid weak demand for refined products.
• Low soybean crushing margin, due to weak demand for animal feed. However, Wilmar managed to increase its sales volume via an extensive marketing network.
• Lower sales volume from the sugar merchandising division despite healthy white sugar premium.

Improvement from China

With sales volume for consumer products segment increasing significantly by 34% qoq and 6% yoy, coupled with better margin with weaker raw material prices.

Food ingredients: Improved yoy

The improvement was primarily driven by its retail segment, which experienced increased sales volume and improved EBITDA margins due to declining raw material costs.

However, this was partly offset by lower margins in the HoReCa segment, where selling prices have a high correlation with raw material prices, despite higher sales volume.

Within the HoReCa subsegment, the flour business incurred losses due to sluggish market demand, intense competition and lower prices of its byproducts.

Feeds & oleochemical: Down yoy

While its oleochemical segment reported better yoy performance driven by increased demand and higher selling prices, profitability in the animal feeds segment was adversely affected by weak demand from the livestock industries, resulting in poor profit margins.

Valuation/Recommendation

Maintain HOLD with a target price of S$3.35. Our valuation is based on 2024F EPS and uses the SOTP valuation by pegging PE of 18x, 10x and 11x for food products, feeds & industrial products and plantations & sugar mills respectively.

You can find the full report here and the company website here.