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Wilmar International 3Q24 results trended way below our and market expectations. Revenue grew both qoq and yoy on higher sales volume across all segments, except for tropical oils.
However, profits fell qoq due to compressed margins across most business segments. The yoy decline was due to weaker performance from China operations and the sugar segment, which both delivered strong 3Q23 results.
Maintain HOLD with an 8% lower target price of S$3.00 (S$3.25 previously).
Results below expectations
Wilmar International (Wilmar) reported 3Q24 core net profit of US$208m (-25% qoq, -36% yoy), bringing 9M24 to account for 51% of our full-year forecast.
This falls short of both our and consensus expectations.
3Q24 earnings declined qoq
Revenue rose 16% qoq and 0.4% yoy due to strong sales volume across both the feed & industrial products (+17% qoq) and food products (+17% qoq).
However, margins were weak across most business segments, leading to lower EBITDA margin and earnings.
3Q24 and 9M24 earnings declined yoy
Earnings decline largely due to weaker performance from Yihai Kerry Arawana (YKA) (30999 CN/Not Rated) and the sugar segment. Recall that YKA recorded a solid profit in 3Q23, as a result of higher sales volume and improved soybean crushing margins.
The sugar division also delivered strong performance in 3Q23, led by higher sugar prices and good white sugar premium. Furthermore, the sugar mills in Australia periodically halted operations due to the workers’ strike.
As this lasted from June to mid-September, the sugar crushing season was negatively impacted.
Some key highlights from Wilmar’s 3Q24 results are:
Tropical oils and fertiliser segments saw better-than-expected results. This was mainly due to improved refining margins from the tropical oils business (within our expectation) and better performance from the fertiliser operations due to the rise in fertiliser prices.
Soybean crushing margins were better than expected, led by a slight uptick in soybean meal demand in China.
Sugar divisions. The milling segment was underwhelming due to the larger-than expected negative impact from the workers’ strike. The merchandising segment likely performed better on higher sugar prices and white sugar premium.
Consumer products business fell yoy, as the higher sales volume was offset by lower prices amid sustained stiff competition.
Valuation/Recommendation
Maintain HOLD with a lower target price of S$3.00 (S$3.25 previously) after we:
Revise our earnings forecasts, and
Increase our PE peg for its China operations from 13x to 16x to reflect better market sentiment after the recent stimulus rollout.
The stock offers a decent dividend yield, making it an attractive option for investors.
The upcoming disposal of Adani-Wilmar stake (~US$680m based on market closing price) also raises prospects of a special dividend, similar to when Wilmar paid out a special dividend of 6.5 S cents/share after raising US$2.05b from the listing of YKA.
Wilmar International share price chart
You can find the full report here and the company websitehere.
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