Wilmar

Wilmar: 1Q15 performance was in line, although net profit of US$263.3m (+49.1% y/y) made only 20% of FY15 consensus street estimates, as 1Q is usually seasonally weakest. Core net profit (ex-non-operating items) profit improved 22.7% to US$241.2m.

Revenue fell 8.3% to US$9.4b lower commodities prices. The segmental reporting structure has been changed, and Palm & Laurics and Plantations are merged into Tropical Oils, while Oilseeds and Grains now include Consumer Products. Volume (13.7m MT, +7.4%) grew across all segments except tropical oils (5.6m MT, -1%).

At the pre-tax level, performance came from a 12x surge in Oilseeds and Grains contribution (US$166.1m) on sharper crush margins in China. Margins in the segment improved to 3.7% from 0.3% a year earlier. Tropical Oils pre-tax profit fell 44.2% to US$152.1m as margin fell 1.7ppt to 3.9% from low upstream yields in Malaysia due to harsh weather, lower CPO prices and depressed refining margins. “Others” swung to a pre-tax profit of US$21.9m from US$36.m loss a year earlier from strong shipping and fertilizer businesses and recovery in investment securities. Meanwhile, Sugar contribution is seasonally insignificant in 1H.

At the group level, bottom line was improved by associates’ contributions of US$39.2m (+142.4%), on stronger performances of China and India associates, as well as a sharp narrowing of FX losses from US$65.3m to US$2.8m.

Net gearing improved to 0.73x from 0.78x a year earlier. Operating cash flow sharply improved to US$1.87b from US$157m a year ago, driven by a US$1b decrease in inventories, largely due to lower stockholding in China after the festive season and seasonal decrease in stockholding of rice and flour. Inventory turnover days was unchanged at 67 days.

On prospects, anagement expects crush margins to remain positive till mid-year, while consumer products will grow globally and margins should be reasonable. Operating conditions for CPO plantations and refining could remain difficult in the near term, but margins should improve if the Indonesian government implements its biodiesel policies. 2Q15 performance is expected to be “cautiously optimistic”

Wilmar is currently trading at 11.8x FY15e consensus P/E and 1x P/B. The counter is Maybank-KE’s preferred pick in the sector.

Latest broker ratings:
Maybank-KE maintains Buy with TP of $4.04
Citi maintains Buy with TP of $3.91
UBS maintains Buy with TP of $3.66
OCBC maintains Buy with TP of $3.50
CIMB maintains Hold, cuts TP to $3.46 from $3.57