Wilmar

Wilmar: missed expectations in 2Q. Net profit for 2Q14 at US$170.7m is 5.2% below house estimates and account for only 13.5% of full year Bloomberg estimates. Net profit declined 22% y/y despite 0.9% y/y increase in revenue to US$10.5b and 12.5% y/y increase in gross profit to US$7852.5m. Excluding non-operating gains on equity investments, core net profit declined 33.6% y/y to US$163.1m. Marginal increase in revenue was driven by 22% increase in Oilseeds and Grains sales volume, 6% increase in Consumer Products sales volume, and improved production yield and higher palm prices in Plantations & Palm Oil Mills. Offsetting these are 4% decline in Palm & Laurics sales volume and margin contractions due to higher CPO feedstock costs and excess refining capacity in the industry, as well as losses in Sugar segment on seasonally lower crush volume. Lower down the income statement, Wilmar took in larger losses from its China associates (pretax loss of US$4m vs pretax profit of US$24.9m) and recorded less FX gains. Net gearing increased from 0.83x in Dec13 to 0.88x in Jun14. As usual, management expects much better performance in 2H14, being optimistic on crush margins, seasonally higher productions in mills and positive contribution from sugar business. However, we caution that there may be heavy margin pressure on the Plantation & Mills segment given the weaker CPO prices in 3Q seen so far. Wilmar proposes 2 cents interim dividend, 20% lower than 2.5 cents distributed for same period last year. The stock trades at 24x annualized 2Q14 P/E, 38.1x annualized 1H14 P/E and 1.1x P/BV.