SINGAPORE (Mar 12): Kuok Khoon Hong’s stake in the palm oil giant he co-founded has risen in the past two months. On March 2, Kuok’s company HPRY Holdings bought 73,900 shares in Wilmar International at an average price of $3.18 on the open market. Three days later, HPRY Holdings acquired another 821,800 shares for $3.12 apiece. Last month, Kuok’s company bought 2.4 million shares for $3.10 a share. The three transactions take Kuok’s deemed stake from 12.19%, or 771 million shares, to 12.24%, or 774.4 million shares.
Kuok is chairman and CEO of Wilmar, which is involved in the global supply chain of agricultural commodities including oils, grains, sugar and flour. It owns plantations, edible oil refineries and sugar milling facilities in Asia-Pacific and Africa. It also runs a major distribution network in China and distributes cooked food there through a partnership with inflight caterer SATS.
For 4QFY2017 ended December, Wilmar’s earnings fell 23.8% to US$427.5 million ($562 million), as revenue declined 3.3% to US$11.55 billion. The agribusiness group was dragged down by its underperforming tropical oils and sugar businesses. The fall in the tropical oils segment was owing to lower processing margins down the supply chain, lower production yields and lower crude palm oil (CPO) prices. Its oilseeds and grains business did well, however, recording a 16% increase in pretax earnings to US$206.5 million, on the back of better crush margins.
Wilmar’s shares are down about 12% over the past 12 months on the back of weak CPO and sugar prices as well as unfavourable market dynamics in the soybean market. A UOB note dated March 7 suggests that CPO price weakness will continue this year, with palm oil likely to be in oversupply by mid-year. A glut of soybeans will add further pressure.
Nevertheless, some analysts believe the downside for Wilmar has been priced in. At least four brokerages have “buy” calls on the stock. “Wilmar’s share price corrected [around] 25% in 2017 and we believe that it is currently a bargain, trading at 12.1 times FY2018 price-to-earnings, lower than its five-year average multiple of 14.6 times,” says DBS Group research in a report on Feb 23. It has a price target of $3.65, representing an upside of 14.8% based on Wilmar’s closing price of $3.18 on March 7. Wilmar is also trading at a 10-year low to its book value.
Meanwhile, RHB Research Institute Singapore says Wilmar’s soybean oil business should do better in the coming year. Wilmar has struggled against unfavourable margins for its business of crushing soybeans to produce soybean oil. But its crush margins improved in 4QFY2017 and may continue to be good. “CEO Kuok guided that demand remains strong in China,” says RHB. “He cited that crushing utilisation remains above 80% and is optimistic on soybean crush margins. We believe this could signal good timing of purchases amid volatile soybean prices.” RHB has a “buy” call, with a price target of $3.45.
However, the commodity giant may be affected by a weaker biodiesel allocation in Indonesia. Indonesia’s Ministry of Energy and Mineral Resources allocates quotas for six-month periods for biodiesel suppliers to its state-owned fuel company Pertamina. Morgan Stanley, in a report on Feb 23, suggests that Wilmar’s biodiesel allocation may continue to decline. The brokerage is “underweight” on Wilmar, with a price target of $2.89.
Share buybacks
