SINGAPORE (May 12): CGS-CIMB is reiterating its “add” call on Wilmar International with an unchanged target price of $4.58, representing a 29% upside for the counter. 

This comes despite a relatively weaker set of results for 1QFY2020 ended March delivered by Asia’s leading agribusiness group on May 11. Wilmar’s earnings slipped 12.7% to US$224.3 million (S$316.7 million) from US$257.0 million the previous year on the back of mark-to-market losses on investment securities. 

However, the group’s topline figures offered a glimmer of hope as revenue increased 4.6% to US$10.9 billion from the previous year. This was due primarily to an increase in demand for the group’s consumer products following strict movement restriction measures imposed by governments to contain the Covid-19 outbreak. 

The group benefited from a sharp rise in household consumption for staples such as rice, flour and cooking oil. However, this was partially offset by a 20% reduction in sales volume of medium pack and bulk products

See: Wilmar posts 12.7% drop in 1Q earnings to $316.7 mil on mark-to-market losses

In a Tuesday report, CGS-CIMB Research analyst Ivy Ng says that the group’s core net profit for the quarter was “broadly in line with expectations”, coming in at 27% of the brokerage’s full-year estimates. 

“Over the past ten years, 1Q core net profit has on average made up 23% of its full-year core net profit,” shares Ng, adding that key drivers for the quarter, excluding non-operating items, came from the consumer products segment in China and tropical oils downstream operations. 

Looking ahead, Ng says that the group remains “cautiously optimistic” that its  2Q operations will not be significantly impacted by the pandemic, provided China’s economy recovers as expected. 

“[Wilmar] expects consumer products business to continue its strong growth in 2Q, Hotel/Restaurant/Catering (HORECA) business to start to recover and feed demand to increase with swine production in China,” says Ng. 

“It is optimistic that its downstream palm oil and sugar refining business will perform well in 2Q, but this is offset by weaker sugar milling and plantation earnings due to lower sugar and CPO prices,” she adds. 

The brokerage also notes that the group’s listing of its China business, Yihai Kerry Arawana Holdings (YKA) is on track for completion, and is expected to be approved in 2HFY2020. 

Although near-term challenges due to the Covid-19 pandemic are inevitable, Ng says that key catalysts for the group include its relatively resilient earnings and YKA’s listing. 

On the flipside, lower-than-expected crush margins and prolonged Covid-19 impacts on economic activities pose key risks to the group. 

As at 1.38pm, shares in Wilmar International are trading 16 cents higher, or 4.5% up, at $3.70.