SINGAPORE (May 14): RHB Research says it is more upbeat on Wilmar’s 2Q18 outlook after the company’s analyst briefing and expects the performance of all its segments to improve q-o-q.
In a Monday report, RHB analyst Juliana Cai says the market has been over-pessimistic on the stock after seeing the y-o-y decline in earnings in 1Q18.
See: Wilmar posts 40.6% drop in 1Q earnings to $273 mil on higher expenses
However, she says this was “due to a high base effect of 1Q17".
In fact, Cai says Wilmar’s tropical oils segment is likely to perform better in 2Q18.
Although RHB’s CPO price assumption remains unchanged at MYR2,550 ($858), management expects refining margin to improve in 2Q18 as duty-free CPO exports in Malaysia end and CPO supply improving seasonally in 2Q18.
In addition, Cai notes that the World Trade Organization has ruled in favour of Indonesia with regard to anti-dumping duties imposed on its biodiesel exports to the EU.
“This is in contrast to 2Q17, when Wilmar was facing waning demand for biodiesel. Hence, we believe downstream margins could widen y-o-y as well,” says Cai.
And despite the volatility in soybean prices caused by US-China trade tensions, CEO Kuok Khoon Hong is said to be fairly confident on the prospects of the crushing business this year.
Even if a tariff on soybeans is implemented over the next month, Cai says the group is not likely to be affected in the near term as the group is still buying from South American sources.
“Hence, The utilisation rate of the crushing segment remains high, ie above 80% in 2Q18,” says Cai.
The analyst also expects a one-off profit increase in sugar as a result of the timing effect from the new Australian sugar marketing programme.
Under this programme, sales in 2H17 were weaker, as a proportion of sugar sales was supposed to be deferred to 1H18.
“Since there was no significant boost in sugar sales volumes in 1Q18, we expect the deferred volume to be realised in 2Q18,” says Cai.
“We think the retracement of Wilmar’s share price presents a good buying opportunity for investors,” says the analyst, “As such, we also adjust our earnings estimates and raise our target price to $3.59 from SGD3.45, implying a 14% upside from current levels.”
As at 12.08am, shares in Wilmar are trading at $3.16 or 12.6 times FY18 recurring earnings.
