Wilmar

Wilmar: JP Morgan have key highlights from recent live conference call. House note that Wilmar’s share price has seen a sharp correction in the last few days, and hosted mgt to address investors’ concerns. Key highlights from the call as follows:

1) Customer default risks: Mgt highlighted that default risk is not a major concern as it hardly observed any default in 2008. A significant part of Wilmar’s sales in China are done on cash basis and customers in China tend not to buy forward in large quantities. Wilmar mainly sells forward to the bigger, reliable customers.

2) Financial receivables: Any risks related to private lending defaults in China?: Mgt confirms that its deposits under financial receivables on its balance sheet are placed with reputed financial institutions (e.g. ICBC, BOC, BoComm) to open LCs for the financing of its oilseeds procurement and assured investors that the deposits are safe.

3) Impact of CPO price decline: Limited impact to the plantation business as prices for this year’s and part of next year’s production have been hedged. For palm & laurics, Wilmar will not be affected if customers hold back their purchases of refined products as it derives its margin largely from hedging and the favorable export tax structure.

4) Favorable export tax for refined products: The lower export tax on refined products (vs. CPO) in Indonesia benefits Wilmar’s continued expansion into oleochemicals and specialty fats products. It also gives refined products exported out of Indonesia an advantage over those from Malaysia.

5) Mgt highlighted that given the 5% price increase was approved in Aug and only fully implemented in Sept, full impact of the margin improvement will only be felt in 4Q11. There is little room for further price increase in the near term given recent price corrections.

6) Recent decline in sugar price limited impact on FY11 earnings: Prices for most of this year's sugar production has been hedged so the recent decline in sugar price would impact FY12 if the weakness continues.

7) Impact from USD strength: Back-to-back hedging is done for its IDR/MYR exposure with timing differences resulting in periodic fx gains/losses through P&L. Rmb remains strong against the USD which is favorable to Wilmar.

In line with stronger demand season, mgt expects 3Q11 sales volume to be higher vs. 2Q11 across business segments.