Wilmar

Wilmar: 1H13 results disappointed the street. 2Q13 core net profit was up 40% yoy, but fell 24% qoq to US$240m. HSBC notes non-operating income (FX, net interest income, and other operating income) was a major contributor, at nearly 27% of 2Q13 net profit. On a qoq basis, declining margins on all of Wilmar’s business segments point to continued margin pressure. A key underperformer was upstream palm oil plantations, where FFB yields fell 7% yoy and qoq leading to a decline in CPO production. Visibility of a recovery in 2H13 is limited at this stage. Meanwhile downstream consumer products saw pretax profit per ton declining 36% qoq despite lower feedstock costs due to the effects of price cuts in Apr and May. HSBC believes the continued sacrifice of pricing power for market share gains means structural headwinds here will remain. HSBC maintains Underweight with TP $3.16. Nomura maintains Neutral with TP $3.80, expects weak stock reaction post results. Deutsche keeps at Hold with TP $3.70. Notes while the stock is trading at 11.6x FY13e P/E, below its 5 yr historical average, it expects share price to remain subdued on weak sentiment in the sector given low CPO prices, expectation of slower 2H growth due to high base effect and concerns of further margin erosion in its Oilseeds & Grains that could negatively impact earnings in 2H.