SINGAPORE (Aug 12): UOB is maintaining its “sell” call for Wilmar International with a target price of $3.05 as the agri-business group reported its first ever quarterly net loss.

In 2Q16, Wilmar reported a core net loss of US$220 million ($296 million) compared to a profit of US$185 million a year ago, dragged down by losses in its manufacturing business within the oilseeds & grains division, as well as the sugar segments.

The oilseeds & grains division suffered its first quarterly loss of US$344 million, due to untimely purchases of soybeans in a highly volatile market. Thankfully, this was mitigated by stable performance from the consumer products business.

In the tropical oils division, profit before tax increased 13.6%, due mainly to higher sales volume from the downstream business. However, FFB production was lower as compared to a year ago, mainly due to the delayed impact from drought conditions.  

Sugar operations posted a net loss before tax of US$79 million. The wider losses was due to harvesting delay in Australia and accounting mark-to-market (MTM) losses on hedges which came on the back of higher sugar prices.

Still, UOB notes that consumer demand for Wilmar’s products remains resilient, pointing to a y-o-y improvement in 1H16 sales volume in the above divisions.

But the research house does not expect overall earnings from milling to rebound strongly in 3Q compared to previous years due to lower production as a result of El Nino. Dry weather in Australia has led to lower sugar yields and will likely lead to lower sugar production in Australia.

JVs and associates also recorded better performances, contributing US$32 million compared to a loss of US$10.5 million a year ago.

While Wilmar is focusing on expanding its consumer packs business, the research house believes that it will take a few years before Wilmar sees a significant contribution from the segment.

The board has declared an interim dividend of 2.5 cents a share.

Shares of Wilmar are trading 0.7% lower at $3.07.