Wilmar: Citi downgrades to Hold from Buy and cuts TP to $5.30 from $6.10. House note that in the short term, Wilmar may see a relief rally on improved margins in both oilseeds and palm merchandising that will help return it back to being a balanced, diversified agriculture firm. Beyond that, for a sustained rerating this year, Wilmar needs to deliver new drivers that will help lift earnings growth to 5-10% p.a vs 3% p.a average since 2008.
The near half reduction in export taxes for processed palm oil exports from Indonesia means reduced competitiveness for 60% of Wilmar’s palm processing capacity which is ex Indo. While Wilmar is aggressively expanding its capacity in Indo by a further 30-40% to bring its global footprint to 50% in Indo, this will only kick-in as contributors by 4Q12.
As such, house see limited upside and downgrade Wilmar to Hold, with TP of $5.30, equivalent to FY12 PER of 16.7x i.e. its five-yr mean.
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