Wilmar

Wilmar: Establishes Brazilian JV in bid to be top sugar exporter
Wilmar is reportedly establishing a venture with Raizen Energia, a JV between Shell and Cosan, in a bid to be Brazil’s top sugar exporter.

The new entity is expected to strengthen existing production and trading operations in Sao Paulo-based Raizen, while providing Wilmar with more access to sugar supplies from Brazil. In the year-to-date, Raizen sold 3m tonnes of sugar, of which 1.04m tonnes went to Wilmar.

The Int'l Sugar Organisation recently stuck to its forecast of a 2.5m-tonne deficit on the global sugar market in 2015/2016. This is set to more than double to 6.2m tonnes, assuming that demand grows at about 2% per annum, with a more arid monsoon season in India as well as the potential effects of El Nino possibly curtailing supply.

Sugar futures have surged 50% to US15.15¢/lb since hitting its seven-year low of US10.13¢/lb in Aug. On an annual basis, sugar prices have fallen in each of the four years leading up to 2014, forcing the closure of 50 out of 340 Brazilian mills, with 10 more expected to halt operations in the current season.

Coupled with the slump in the Brazilian real, increased sugar exports would help bolster Wilmar’s sugar milling segment, which saw a 13.8% y/y revenue decline in 3Q15 to US$470.1m even though sales volume grew 19.5% to 1.9m tons.

Maybank-KE maintains its Buy call on the counter with TP of $4.14 as it sees El Nino crimping soft commodity supplies in 2016, in particular crude palm oil.

Wilmar is currently trading at 11.7x FY15eP/E and 0.9x P/B.