SINGAPORE (Mar 8): OCBC is highlighting Wilmar International as its top “buy” pick at a fair value estimate of $3.51 for its lower likelihood of being impacted by India’s recent import tax hike on crude palm oil (CPO), given its diversified business which extends to trading in other oils.
In a Thursday report, lead analyst Low Pei Han says she expects CPO prices to remain lacklusture despite OCBC Treasure Research and Strategy’s expectations of relatively healthier fundamentals, as seen since the start of 2018, to lift CPO prices higher.
The disappointment was largely due to lower global supplies and the expensive ringgit.
With India having recently raised import tax on CPO from 30% to 44% and the taxed on refined palm oil from 40% to 54, Low says imports of CPO are likely to be dented.
The bank is forecasting CPO prices of RM2,487/MT in 2Q18, RM2,443/MT in 3Q18 and RM2,400/MT in 4Q18.
“India mainly imports palm oil from Indonesia and Malaysia, the world’s top producers. It is expected that the duty hike would narrow the difference between palm oil and soft oils like soy oil and sunflower oil, which is likely to lead to increased demand for the latter two,” explains the analyst.
“Pure CPO upstream players are likely to be more impacted by this development in India, whereas more diversified players like Wilmar which also trades in other oils are likely to be less impacted,” she adds.
The group recently reported FY17 earnings which exceeded OCBC and the street’s expectations, underpinned by good performance from its oilseeds & grains sectors as well as strong contributions from joint ventures (JVs) and associates.
It also declared full year dividends of 10 cents per share, which is 54% higher than its dividend of 6.5 cents per share in FY16.
See: Wilmar reports 23.8% decline in 4Q earnings to US$427.5 mil
Wilmar’s latest full-year performance contrasts that of Golden Agri-Resources (GAR), which impacted by one-off items such as changes in the fair value of biological assets as well as impairment losses although the group reported underlying profit of US$253.8 million excluding the one-offs.
See: Golden Agri sinks into the red with 4Q loss of US$29.1 mil
GAR is rated “hold” by OCBC with a fair value of 37 cents.
“HPRY Holdings, a company wholly-owned by Mr. Kuok Khoon Hong, has also been acquiring shares in Wilmar recently – a total of about 3.3 million shares at an average of $3.107/share since late Feb,” adds Low.
As at 12.06pm, shares in Wilmar and GAR are both trading flat at $3.18 and 36 cents, respectively.