Wilmar

OCBC on 12 Mar 2012


Wilmar International Limited (WIL) saw its share price tumble 17.1%, after reporting a muted set of 4Q11 results on 22 Feb, to hit a recent low of S$4.86. YTD, the stock is down 0.6% compared to the STI’s 12.6% rally. Since the stock price has fallen below our unchanged fair value of S$5.15, based on 15x FY12F EPS, we upgrade our rating from Sell to HOLD based on valuation grounds. However, we would turn buyers at around S$4.90 or better. Meanwhile, WIL recently announced that it has paid A$115m to acquire a 10.1% stake in Goodman Fielder, Australasia’s leading listed branded food company, to become its largest shareholder. While there are potential synergies between the two groups, any potential collaboration would take time to crystallise and a further increase in stake in Goodman Fielder could possibly face scrutiny from the Australian authorities. Hence, we hold off adjusting our estimates since any synergistic boost to WIL’s earnings would not happen in the near term.

Punished after muted 4Q11 showing
Wilmar International Limited (WIL) saw its share price tumble 17.1%, after reporting a muted set of 4Q11 results on 22 Feb, to hit a recent low of S$4.86. YTD, the stock is down 0.6% compared to the STI’s 12.6% rally. Since the stock price has fallen below our unchanged fair value of S$5.15, based on 15x FY12F EPS, we upgrade our rating from Sell to HOLD based on valuation grounds. However, we would turn buyers around S$4.90 or better.

Bottom likely passed but margin pressures remain
While we believe WIL’s operations should not worsen from here, it is notable that management continues to maintain a slightly cautious tone. WIL’s Oilseeds & Grains business is especially challenged because of the margin pressures it is facing in China, as a result of prevailing excess capacity. As a recap, WIL’s Oilseeds & Grains segment saw margin falling 98% QoQ to US$0.3/MT. Furthermore, with the exception of its Consumer Pack segment, WIL’s all other business segments experienced QoQ margin contraction in 4Q11.

10.1% stake in Goodman Fielder
WIL recently announced that it has paid A$115m to acquire a 10.1% stake in Goodman Fielder, Australasia’s leading listed branded food company, to become its largest shareholder. WIL said it is currently assessing whether to increase its stake Goodman, which produces baked goods, dairy products, home ingredients and commercial food products. WIL added it will work with Goodman’s management to increase collaboration between the two groups over time. However, while there are potential synergies between the two groups, any potential collaboration would take time to crystallise and a further increase in stake in Goodman could possibly face scrutiny from the Australian authorities. Hence, we hold off adjusting our estimates since any synergistic boost to WIL’s earnings would not happen in the near term. 

Wilmar

Kim Eng on 28 Feb 2012

Below par. Wilmar’s stock price has taken quite a beating following the recent release of its FY11 numbers, which came in below market expectations. However, its full-year net profit of US$1.6b was slightly ahead of our forecast of US$1.56b, and slightly below if biological gains and non-operating items were excluded. Net of these, net profit was US$1.52b. With variances in margins the norm going forward, earnings multiples are simply not commensurate with this risk. We maintain our Sell recommendation and target price of $4.50.

Weakness across the board. Volumes across all divisions were hit by weaker demand while ASPs were not appreciably higher. While FY11 turnover was up by 47% YoY, 4Q11 saw specific weakness as revenue marked a 20% QoQ decline. Sales volume for palm & laurics was the worst affected due to lower demand from Europe and India. In terms of pretax earnings, the oilseeds & grains segment posted a spectacular decline – eking out just US$1.7m in 4Q11 versus US$99.7m in 3Q11 – due to weak crush margins and overcapacity in China. For plantations and palm oil mills, Wilmar’s internal production was hurt by lower yields in 4Q11, thus increasing reliance on external CPO purchases at thinner margins. Also sub-par were contributions from the sugar division.

Earnings profile risky. We are leaving our forecasts for Wilmar intact, which implies flat earnings. We have had a negative view on Wilmar since November last year. With earnings volatility clearly evident over several reporting periods, we think Wilmar is not very different from a commodities trader whose earnings and margins get eroded if demand recedes or if it gets squeezed on its purchasing. In our opinion, the market needs to take this factor into consideration.

Maintain Sell. Given the ongoing price risk, the consensus estimate of US$1.74b earnings for FY12 appears risky to us. Our expectation is for earnings to remain flat at US$1.59b. Consequently, Wilmar’s FY12 PER of 17x looks unjustified. We reiterate our Sell recommendation and target price of $4.50, which is based on a more realistic 15x FY12 PER.

Wilmar

OCBC on 22 Feb 2012

Wilmar International Limited (WIL) reported a pretty muted set of 4Q11 results this morning. For FY11, revenue climbed 47.2% to US$44.7b, or 0.8% shy of our forecast; reported net profit rose 20.9% to US$1.6b; but if we strip away non-operating items and biological assets gains, core earnings would have come in around US$1.52b, or around 9% below our forecast. Going forward, management believes that things should not get worse from here, but it retains a slightly cautious tone, especially towards its Oilseeds & Grains business which is still facing margin pressures in China due to the excess capacity there still. Market appears to be anticipating a much stronger recovery, but not supported by the 4Q11 results and its outlook. In view of the more “risk-on” approach, we have also raised our valuation peg from 12x to 15x FY12F EPS, and this in turns raises our fair value to S$5.15. But given the stock has run way ahead of fundamentals, we downgrade our call to SELL.

Muted 4Q11 results
Wilmar International Limited (WIL) reported a pretty muted set of 4Q11 results this morning. While revenue rose 26.7% YoY to US$11.5b, it fell 12.0% QoQ. Reported net profit jumped 56.9% YoY and 188.3% QoQ to US$500.0m; but excluding non-cash items, core earnings would have come in around US$265.0m. For FY11, revenue climbed 47.2% to US$44.7b, or 0.8% shy of our forecast; reported net profit rose 20.9% to US$1.6b; but core earnings would have come in around US$1.52b, or around 9% below our forecast. WIL declared a final dividend of S$0.031, bringing the total dividend to S$0.061, versus total of S$0.055 last year.

Margins hit QoQ for most segments
Most business segments performed poorly QoQ on the margin front, with the exception of its Consumer Pack segment, which rose 147% QoQ (down 22% YoY) to US$28.1/MT. Profitability for its Palm & Lauric business declined 26% YoY and 31% QoQ to US$20.3/MT, while Oilseeds & Grains fared even worse, down 101% YoY and 98% QoQ to US$0.3/MT. Even sugar saw its Milling margin drop by 47% to US39.5/MT and Processing even showed a loss of US$22.4/MT from US$35.9/MT in 3Q11.

Bottom likely seen but catalysts still lacking
Management believes that things should not get worse from here, but it retains a slightly cautious tone, especially towards its Oilseeds & Grains business which is still facing margin pressures in China due to the excess capacity there. Market appears to be anticipating a much stronger recovery, but not supported by the 4Q11 results and its outlook.

Downgrade to SELL with S$5.15 fair value
We have made minor tweaks to our FY12 forecast. In view of the more “risk-on” approach, we have also raised our valuation peg from 12x to 15x FY12F EPS, and this in turns raises our fair value to S$5.15. But given the stock has run way ahead of fundamentals, we downgrade our call to SELL. We would be buyers around S$5. 

Palm Players

Kim Eng on 22 Feb 2012

Wilmar International released its FY11 results this morning and the numbers were broadly in line with our forecasts as well as consensus estimates. However, its share price has taken a beating (-$0.50, -8.5%) in the aftermath, possibly due to contracted margins reported in 4Q11 for its palm and laurics merchandising and processing segment. The decline was caused by a variety of factors: unfavourable market conditions in China and India, ongoing European financial crisis and the disadvantaged position of Malaysia given new Indonesian export duty structure. There was also a significant drop in the 4Q11 contribution from other income (-US$36m, -60% YoY), arising from a decrease in gains from investment securities, lower fertiliser profits and lower shipping profits. As for future prospects, Wilmar is exploring closer collaborations to meet the growing demand for agricultural products.

Noble Group’s share price appears to have been dragged down the same way on high volume, perhaps due to the perception that it has some businesses similar to Wilmar’s. Nevertheless, it should be noted that the group does not have exposure to palm oil (though it has a 51% stake in an Indonesia-based palm plantation under development). Wilmar’s soybean crushing operations in China, where Noble is similarly exposed to, did stage a sharp turnaround to profitability against the same quarter last year, but profit was marginal and margins remained challenging.


Wilmar International (WIL SP, $5.35)
Key levels
Resistance 2: $6.00
Resistance 1: $5.50
Support 1: $5.25
Support 2: $4.80
The stock has unexpectedly staged a negative gap-down on huge volume today. This is often a negative indication that selling pressure is on the rise. With no sign of relief, the retracement could continue to trade towards the $5.25 support level. RSI is below the neutral level and heading towards the oversold region.


Noble Group (NOBL SP, $1.455)
Key levels
Resistance 2: $1.68
Resistance 1: $1.55
Support 1: $1.40
Support 2: $1.285
The stock price looks positive on both an intermediate and short-term time frame. It is currently trying to breach above the 200-day EMA. A pullback towards $1.40 seems likely if the stock fails to trade above the $1.55 level.


Golden Agri-Resources (GGR SP, $0.775)
Key levels
Resistance 2: $0.83
Resistance 1: $0.80
Support 1: $0.75
Support 2: $0.70
The broad overall trend in the medium term is still positive as defined by the key moving averages. Candlesticks are trading within the ascending channel, suggesting that the bullish trend is intact. Trading above the $0.80 level would indicate more buying ahead.

Wilmar

DBS on 13 Jan 2012

DBS Vickers Securities in a Jan 13 research report says: "As part of its US$5.0 billion Medium Term Note (MTN programme, Wilmar announced its pricing for $250 million 3.5% Notes due 2017 and $100 million 4.1% Notes due 2019. Both 5-year and 7-year Notes will be issued on Jan 25.


 "The proceeds will be used for general corporate purposes. Based on its balance sheet as at Sep 30, 2011, Wilmar had US$12,261.1 million net debts, of which US$6,869 million was liquid working capital (including Readily Marketable Inventories). Excluding liquid working capital, net gearing was hence calculated at 42.1% (not including non-controlling interest).


 "The new Notes will raise Wilmar's net gearing slightly to 44.2% - which we believe is manageable for the group (i.e. no significant impact on interest cover). Target price of $5.40 remain unchanged. HOLD"

Wilmar

DBS VICKERS on Dec 28

IN an announcement issued last Friday, Wilmar International said its wholly owned subsidiary, WCA Pte Ltd (WPL), together with Kerry Properties (China) Limited (KPCL) and Shangri-La China Limited (SACL), entered into a termination agreement with the Laobian Branch of Yingkou City Land Resources Bureau (the Termination Agreement) on Dec 23, 2011, pursuant to which: 1) The notices to confirm the JV Parties' winning bid for the land use rights for the Laobian project sites will be terminated; 2) 271.57 million yuan deposit paid by the JV parties for the Laobian project sites bid will be returned to the joint venture company owned by WPL, KPCL and SACL (in the proportion of 35 per cent, 40 per cent and 25 per cent respectively); and 3) The JV Parties and the JV company will be relieved from all liabilities and obligations for the land use rights bid.

The JV company will be wound up after all matters relating to the termination of the acquisition of the Laobian project sites have been settled. As part of the winding-up process, all assets of the JV company will be distributed to the JV parties according to their respective interests in the JV company.
The JV parties have a project in the same city located at Bayuquan, Yingkou City (details of which are set out in Wilmar's announcement dated Dec 21, 2010).
Comments: No financial outlay and contribution from Wilmar's China property projects have been included in our forecasts. Hence, this latest announcement has no impact on our numbers. The deposit was returned, as we understand the winning bid was non-binding. However, this raised questions whether the local government can unilaterally do the same for Wilmar's other JVs in Bayuquan district; and whether the termination will have implications for the group's future opportunities in the Liaoning province. While we are awaiting answers from Wilmar, our recommendation and TP on the stock remains unchanged.
HOLD