Wilmar International – Challenging 2nd Quarter

Excerpts from UOBKayHian report

Wilmar Internationa (SGX: F34)

• Wilmar is scheduled to release 1H23 results on 11 Aug 23. We are expecting core net profit of US$280m-320m (vs 2Q22: US$477m and 1Q23: US$382m).
• 2Q is usually the weakest quarter for Wilmar. There were also some hedging gains in 2Q22 as reported by YKA.
• After our recent trips to China and Indonesia, we revised down our expectations on YKA and tropical oil contributions. This led to a 7% earnings cut for 2023F.

Maintain BUY and lower target price to S$4.35 (from S$5.50).

Review of 2Q23

Wilmar is scheduled to release its 1H23 results on 11 Aug 23. We are expecting core net profit of US$280m-320m (vs 2Q22: US$477m and 1Q23: US$382m). 2Q is usually the weakest quarter for Wilmar as demand weakens after festive seasons in 1Q. There was a hedging gain in 2Q22 as reported by Yihai Kerry Arawana (YKA).

Revised down 2Q23 expectation

We would also like to highlight that the current 2Q23 core earnings expectation is lower than our initial estimates in the post-1Q23 briefing in early-May 23. The downward revision came after our recent visits to China and Indonesia as we think that margin recovery could be slower than our initial expectations.

China consumer spending has improved but they are more cautious

During a recent trip, we noticed that malls have better footfall and better business for HoReCa (hotel,restuarant and catering), which will translate into better sales for medium and bulk packs. However, the margin from this segment is much lower than consumer packs, which still see subdued sales (espeically for cooking oil). Sales for cooking oil is relatively slow as most households are still have a few bottles at home from their purchases in 2022 over fears of a sudden lockdown. On top of that, consumers are now looking for more value when it comes to purchasing, and more promotions need to be carried out to protect market share.

Valuation/Recommendation

Maintain BUY with lower target price of S$4.35 (previous: S$5.50) after factoring in lower earnings. Our target price is derived using the SOTP valuation by pegging a 2023F PE of 25x, 11x and 12x for Food Products, Feeds & Industrial Products and Plantations & Sugar Mills respectively. The fair value of S$4.35 translates to a blended 2023F PE of 11x. Fair value revision is greater than earnings revision because a large part of the earnings downward adjustment was made to the food products division which has a higher PE vs the other two divisions.  

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