Wilmar

Wilmar: DBSV expect near-term downside and maintains Hold with $3.72 TP. Note of potential impact of bird flu in China. House learned over the weekend that authorities in Hangzhou and Nanjing have suspended live poultry trades, making them the second and third cities after Shanghai to take action to curb the spread of the H7N9 virus which had caused six deaths last week. According to media reports, Shanghai culled c.20k birds on Friday. The culling has remained insignificant so far, but an escalation may cut soybean meal demand/prices, and in turn, crush margins in China. Elsewhere, estimate Indonesian palm oil gross refining margins have now dropped to US$45/MT from US$77 in Dec12, while Msian margin are flat at US$48. Although house projecting only US$31-33/MT pretax margins, there is downside risk if we impute trade barrier costs (i.e. Indian import tax). House initial margin assumptions were aggressive and now cut Palm & Lauric pretax margins to US$26-27/MT after imputing higher trade costs. Keeping FY13F Oilseeds & Grains pretax margin of US$3/MT, but cut next year’s margin to US$5 from US$6. These reduced DCF-derived TP to US$3.72 (WACC 6.6%, ERP 8.7%, Beta 1.1, TG 3%).