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SINGAPORE (Feb 23): Although the ongoing Covid-19 virus has posed challenges for companies in almost all industries, Wilmar International appears to be in a strong place for the long-term. 

The group posted earnings of US$438.4 million ($613.7 million) for 4QFY0219 ended December, some 120% higher than earnings of US$199.4 million a year ago. As a result, full-year earnings was lifted to US$1.3 billion, some 15% higher than US$1.1 billion in FY2018. 

The group had also proposed a final tax exempt one-tier dividend of 9.5 cents per share, bringing its total dividend paid and proposed for FY2019 to 12.5 cents per share. This denoted the highest cash dividend declared by the group since its listing.

See: Wilmar reports 120% surge in 4Q earnings to US$438 mil, proposes record-high dividend for FY2019

To be sure, Wilmar’s full-year earnings had also beat analysts’ forecasts, coming in at 8% and 3% higher than the estimated figures by CGS-CIMB and RHB Group Research respectively. Both brokerages had attributed this to better-than-expected earnings from the group’s tropical oil segment on the back of better merchandising and processing margins. 

In a Friday report, RHB analyst Juliana Cai opines that the segment is likely to continue delivering strong returns in 1QFY2020 as a result of higher crude palm oil (CPO) prices, before tapering off on rising input costs for downstream businesses. 

“We expect the tropical oils to earn supernormal margins in the short term as its plantation unit continues to benefit from rising CPO prices while its merchandising and downstream activities still delivered solid performance on strong demand and low-cost stocks,” says Cai.

Cai notes that the reversal of the group’s sugar segment into the red had thrown a dampener on its financial figures. Although the segment had generated a positive profit of US$2.6 million, its share of joint ventures and associates for FY2019 had declined 51% y-o-y due to the weaker performances in China, Africa, and Vietnam. 

“Contributions from JV and associates made up 20% of FY18 earnings, the decline in FY19 therefore offset some of the gains in the tropical oils segment,” notes Cai. 

Meanwhile, CGS-CIMB lead analyst Ivy Ng hones in on Wilmar’s plan to forge ahead with the China listing of its China business, Yihai Kerry Arawana Holdings (YKA). This was despite the  group saying that the Covid-19 outbreak had posed some challenges to its operating environment. 

“The group does not expect this to have any major impact as its business is mainly involved in the food products industry, but it indicated that should the outbreak be prolonged, it could have a greater impact on its operations,” shares Ng. 

“The group is going ahead with its China listing in 2020, although it may be slightly delayed by the Covid-19 outbreak,” says Ng, adding that the brokerage continues to favour the group for its attractive valuations, and views the listing as a “key catalyst.”

According to RHB’s Cai, the management is expecting the listing to be approved this year, but a “caveat of delays” remain amid the virus outbreak. 

Both CGS-CIMB and RHB are reiterating their “buy” calls on Wilmar, with target prices of $4.58 and $4.77 respectively. 

Shares in Wilmar closed at $4.11 on Friday, which translates to a price-to-earnings (P/E) ratio of 16.6 times and a dividend yield of 2.8% for FY2020F according to CGS-CIMB valuations.