Excerpts from UOBKayHian report
Wilmar International (SGX: F34)
- From Wilmar International briefing, management held a more positive tone than its outlook statement. While cautiously optimistic, Wilmar sees minimal impact from the China cooking oil scandal.
- Sales volumes and margins across food products and feed & industrial products segments are expected to improve. Though sugar milling operations face disruptions, an agreement may be on the horizon.
- We believe YKA’s performance is on track for recovery.
Maintain HOLD. Target price: S$3.25.
The 2H24 outlook guidance is more positive than initially anticipated
This could support the share price. At the current share price, the interim DPS of S$0.06 is giving a yield of 1.9% and we anticipate a higher final dividend.
This could make the current price an attractive entry point for yield-seeking investors.
The key difference in our outlook stems from concerns about the consumer pack segment, particularly the potential impact on consumer pack cooking oil sales and margins in China following the recent cooking oil scandal.
Maintain HOLD
While Wilmar International’s (Wilmar) briefing carried a more positive tone, we remain conservative on the stock as Yihai Kerry Arawana’s (YKA) earnings volatility remains high in the uncertain macroenvironment.
1H24 earnings account for about 38% of our full-year forecast, in line with the typical seasonality as 2H traditionally performs better with festivities and the peak period of sugar milling.
Key takeaways from the briefing for each division are as follows:
Food products
For China operations, management has shared that the contamination scandal has minimal impact, with sales for consumer pack cooking oil returning to normal after a 1-2-week decline.
Sales volume is therefore likely to remain stable in China for 2024. Overall margins are expected to improve with lower raw material costs.
Feed & industrial products:
Tropical oils. Sales volume and margins are expected to improve in 2H24. This will be driven by:
- higher crude palm oil (CPO) production in Indonesia (1H24 saw a yoy decline in Indonesia)
- weakening domestic CPO prices, which ease feedstock costs, and
- the potential for an upward revision of the domestic obligation price (DPO) across the value chain. These factors could narrow domestic market obligation (DMO) losses, and in some cases, even lead to breakeven.
Oilseeds & grains. Soybean crushing is expected to improve with higher and seemingly sustainable demand for soybean meal (SBM). This is driven by lower SBM prices, leading to an increased meal inclusion ratio (ie more SBM is being mixed into animal feed).
Demand for animal feed is also improving, in tandem with better pork prices.
Plantation and sugar milling
Sugar production may still be affected by operational disruptions in Australia, where a workers’ strike over pay adjustments has been ongoing since May.
Wilmar temporarily shuts down operations at its eight sugar mills for an hour a week, which will impact its harvest. However, an agreement appears to be closer now.
Valuation/Recommendation
Maintain HOLD with a target price of S$3.25. Our target price is derived using the SOTP valuation by pegging a 2025F PE of 13x, 10x and 11x for food products, feeds & industrial products and plantations & sugar mills respectively.
The fair value of S$3.25 translates to a blended 2025F PE of 8x. For investors looking for yield, we believe the current price could be an attractive entry point as we anticipate a higher final dividend.
To recap, the interim DPS of S$0.06 is giving a yield of 1.9%.
You can find the full report here and the company website here.
