While shares in Wilmar International have dipped since the group announced its record earnings for the 1QFY2021 on April 29, analysts from CGS-CIMB Research, OCBC Investment Research and RHB Group Research are recommending investors continue to accumulate shares in the group.

CGS-CIMB Research, OCBC investment Research and RHB Group Research have maintained “add” or “buy” on the counter with target prices of $6.15 (unchanged), $6.21 (from $6.16) and $6.45 (unchanged), respectively.

Wilmar’s core net profit of US$450.2 million ($597.0 million) for the 1QFY2021 – which is its highest net profit for the 1QFY2021 so far – came in line with all three brokerages’ expectations at 27% of CGS-CIMB’s and OCBC’s FY2021 forecast and 25% of RHB’s FY2021 projections.

“Over the past ten years, [Wilmar’s] 1QFY2021 core net profit has on average made up 21% of its full-year core net profit. 1QFY2021 reported net profit grew at a faster rate of 101% due to gains from the group’s investment securities versus losses in 1QFY2020,” write CGS-CIMB analyst Ivy Ng.

The group revealed that its feed and industrial segment posted “good manufacturing margins”, which Ng suspects, “could be driven by a more favourable export levy structure for Indonesia downstream producers in 4QFY2020, reversal of marked-to market losses on hedging derivatives relating to its soybean crushing business and better sugar refining margins and volumes”.

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SEE:Wilmar International's net profit doubles to US$450.2 mil, highest for 1Q

While Ng has kept her estimates unchanged in an April 30 report, she has projected Wilmar to record 7% of earnings growth in the FY2021 in her May 3 report.

The growth is likely to be due to recovery in demand for food products in Wilmar’s Hotel/Restaurant/Catering (HORECA) sector, high processing margin from palm products, higher crude palm oil (CPO) price, and higher profit from the sugar division.

She adds that the stock is currently undervalued and offers a “cheaper and more liquid entry” into its 89.99%-owned subsidiary, Yihai Kerry Arawana (YKA).

Furthermore, Wilmar is currently strengthening its business model to provide the group with an even stronger competitive edge against its peers.

"[Wilmar] is building more plants in existing and new complexes in new locations. On top of this, it is developing new high growth and complementary businesses like central kitchen and soy sauce, vinegar and yeast products... As a result, the group will become more competitive in the medium term due to lower production costs and lower logistics and marketing costs,” Ng writes.

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“The group is of the view that investors are likely to re-rate its operations once the benefits from its expansion plans are fully recognised, likely in two to three years. The group is also looking to unlock shareholders value by exploring potentially listing its 50%-owned Adani Wilmar,” she adds.

For OCBC analyst Chu Peng, she continues to see Wilmar as a “beneficiary of recovery” in China, higher CPO and sugar prices, as well as Indonesia’s B30 programme.

“We understand from the management that Wilmar is the essential food products provider in India, and they have seen little impact from rising infection rates in India on Wilmar’s operations, except for the HORECA demand,” she writes.

To the RHB team, Wilmar’s value proposition lies in its integrated business model, which “enables it to better withstand volatility in commodity prices”.

On this, it has kept its earnings forecast as it continues to “like” the group’s integrated model and long-term expansion plans, which will enable it to establish a firmer presence in China and India, which are “two large growth markets”, writes the team.

“Going forward, the plantation upstream division should benefit from higher CPO prices and higher CPO output of 5% in FY21. As for sugar milling, given the rising raw sugar prices and white sugar premium, we expect to continue seeing stronger profits from this sub-division,” it adds.

As at 10.46am, shares in Wilmar are trading 4 cents higher or 0.8% up at $5.05.