Wilmar

Wilmar: Macquarie note that reaction to 2Q results was not as exaggerated as 3 mths ago when Wilmar announced a 34% YoY drop in its 1Q12 net profit. The stock dived 15.5% in the following 5 trading sessions. Looking at the bright side, mgt continued to reassure that co's long term prospects remain intact and Wilmar is well-positioned to capture demand growth in Asia and emerging markets. However, it is noted that times could be tough in the near future, particularly due to the excess oilseeds crushing capacity in China. Early this year, the shareholders of Wilmar authorised a share buy back program at its AGM. Under the plan, the company could repurchase up to 10% of its share capital. Till now, the management has not started its buy back program. Its commencement could be supportive to Wilmar’s share price as seen through the effects of Olam’s share repurchase program. or worse has yet to come? Oilseeds & Grains division was the main disappointment in 2Q12, posting a US$40m loss. Its traditionally stronger Palm & Laurics division (CPO refining) fell short of expectation as well. The management said that crush margin was poor and was exacerbated by losses from the depreciation of RMB against USD. House cut its medium term estimates by about a qtr, with TP at $3.00 from $4.57 (implied 2013 target PE of 11.7x). Reasons leading to the decision include 1) limited scope for upside to earnings and, 2) a return to historical mid-teens P/E multiples looks hard to justify today. Stay Neutral, but expect Wilmar to underperform from a country perspective (10% upside to their FSSTI target).