Wilmar showing signs of mending profitability, analysts keep 'buy'

Wilmar’s FY2024 earnings could recover from the low level expected this year, mainly on the trend of improving sales volume.

Analysts at DBS Group Research, CGS-CIMB Research and RHB Bank Singapore are keeping their “buy” and “add” calls on Wilmar International F34 on the back of mending profitability following the company’s 3QFY2023 ended September results release.

CGS-CIMB analysts Tay Wee Kuang and Lim Siew Khee note that Wilmar’s 3QFY2023 ebitda of US$1 billion ($1.37 billion) brought 9MFY2023 ebitda to US$2.7 billion, in line at 78.9% of their FY2023 estimates while 9MFY2023 core net profit of US$900.9 million was largely in line at 73.1% of the analysts’ FY2023 estimates.

The analysts are “heartened” by the q-o-q growth in sales volume across all of Wilmar’s sub-segments during the quarter. “Notably, the 35.3% q-o-q growth in sales volume of its consumer products sub-segment underpinned the 12.5% q-o-q growth of its food products segment in 3QFY2023 — highlighting an improvement in consumer sentiment in China, as Wilmar’s medium pack and bulk sub-segment’s sales volumes continued to reach record levels since FY2019.

“We note, however, that Wilmar tends to experience a seasonally stronger third quarter in terms of sales volume, likely ahead of the festive season in China heading into the fourth quarter,” Tay and Lim add.

Although there were no disclosures for the plantation and sugar milling division in its 3QFY2023, it should have improved q-o-q as crude palm oil (CPO) prices rose and fresh fruit bunches output increased seasonally, RHB analysts point out. Wilmar has not been hit by any significant dry weather impact as yet, as production remained solid during the quarter. Nevertheless, this could have been offset by higher costs and losses in the fertiliser division on the back of lower prices, they add.

"Going forward, the sugar milling division should continue to outperform while the plantation division should see better profitability in 2024 as costs moderate and El Nino impacts prices."

Meanwhile, DBS analyst William Simadiputra believes Wilmar’s FY2024 earnings could recover from the low level expected this year, mainly on the trend of improving sales volume seen in tropical oil and food products.

“We see room for an earnings improvement in 2024 despite acknowledging that the q-o-q earnings expansion in 3QFY2023 is insufficient to achieve our prior earnings forecast. Sales volumes in the food products division are returning, and that is crucial, since food products have a higher gross profit margin versus other segments, while also having more stable profitability characteristics than tropical oils and the crushing business,” he adds.

DBS now conservatively forecasts that the low palm oil refining margin will only recover in 2024 alongside higher crude palm oil (CPO) price trend and easing pressure from sunflower oil. As such, the analysts cut their FY2023 and FY2024 earnings estimates by 24% and 17% respectively to US$1.3 billion and US$1.77 billion. This implies a 19.3% CAGR in 2023 to 2025 on the profitability improvement trend.

Simadiputra has also lowered his target price to $4.30 from $5.30 previously based on 14x P/E multiple to blended FY2023 and FY2024 earnings. “We believe our P/E multiple assumption is fair, as it is only slightly higher than its plantation universe peers’ FY2024 average P/E of 10x.

“We believe Wilmar should be trading above its upstream palm oil peers due to its comprehensive refining facilities in Indonesia and overseas. Meanwhile, Wilmar’s position as one of the largest palm oil exporters in Indonesia provides it some advantages, mainly in procuring CPO at competitive prices,” he adds.

CGS-CIMB’s Tay and Lim are keeping their target price at $4.05, maintaining their earnings forecast as they believe Wilmar would continue to benefit from the consumption recovery in China to support their implied 4QFY2023 core net profit of US$330 million.

RHB analysts are also keeping their target price ar $4.25.

As at 10.56am, shares in Wilmar are trading 1 cent lower or 0.28% down at $3.53.

 

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