Wilmar’s 1Q lifted by one-offs but analysts see better prospects

Analystsare positive about Wilmar International after the agribusiness giant reported earnings and revenue growth for the 1QFY2022 ended March. While the bottom line was partly lifted by oneoff gains and there is also the spectre of higher material costs and slower demand, the company is guiding for a “satisfactory” FY2022.

On April 29, Wilmar reported earnings of US$530.3 million ($737.6 million) for the quarter, up 17.8% from a year ago while revenue rose 23.2% to US$17.58 billion. Besides better numbers from its plantation and sugar milling divisions, Wilmar booked a US$175.6 million gain from the IPO of its unit in India, Adani Wilmar. If the various one-off items are excluded, Wilmar would have booked core earnings of US$327.8 million, which is down 23% y-o-y and 39% q-o-q.

“Despite the tough operating environment, Wilmar expects its FY2022 earnings to be satisfactory,” says CGS-CIMB Research’s Ivy Ng in her May 4 note, where she has an “add” call and $5.69 price target.

She sees a few possible positives, including higher soybean crushing margins in China, the start of operations at its new central kitchen in Hangzhou as well as the sale of another 6.5% in Adani Wilmar within three years of its February listing.

Indonesia’s recent export ban on palm oil, which has sent another wave of jitters to the market already trying to grapple with the inflationary pressures, is likely to be temporary as soon as the country’s supply-demand balance is restored. “The potential earnings impact from this ruling on Wilmar will be dependent on when the government lifts the export ban; we predict in a month’s time,” says Ng.

Meanwhile, Wilmar can continue to buy fresh fruit bunches from farmers and go ahead with their processing as the company has sufficient storage capacities, adds Ng.

On the whole, Ng sees Wilmar as being currently undervalued as its 90% stake in Yihai Kerry Arawana Holdings (YKA) and 44% stake in Adani Wilmar of US$38.3 billion is 89% higher than Wilmar’s market cap of US$20.1 billion.

Citi Research analyst Jame Osman, on his part, has similarly kept his positive view on Wilmar with a “buy” call and $6.08 price target. “Our structural view of Wilmar and its business model remains intact. We believe the company will be a net beneficiary of food inflation pressures as Citi’s commodities team expects prices for staple grains and veg. oils could remain stronger for longer,” he writes in his May 2 report.

Osman sees a better 2QFY2022 with recovery from China. Likewise, he sees potential gains from Wilmar trimming its stake in Adani Wilmar. “Valuations remain compelling, in our view, with the stock trading at FY2022 P/E of 10x; over 1 standard deviation below past [its] 10-year mean of 14.2x,” he adds.

Despite lower core earnings, the team at RHB Group Research has deemed Wilmar’s 1QFY2022 performance a “decent start to the year”. In their May 5 report, the team has kept their “buy” call as Wilmar’s performance was in line with their estimates at 25% to 27% of their FY2022 forecasts.

“Despite all this, we believe the stock remains severely undervalued — it is trading at 10x FY2022 P/E vs China-listed peers’ 26–39x, especially given the imminent future value-unlocking exercises,” the team writes.

That said, the team has lowered its target price on Wilmar to $5.10 from $5.30, which includes a 2% ESG premium.

RHB has also trimmed its earnings estimates for FY2022 to FY2024 by 3% to 4% after reducing its consumer pack, oilseeds and grains sales volumes, to account for the impact of the China lockdowns and weak demand from the poultry and swine farmers.

“We believe the process of value-unlocking is still imminent, with the next round being the sale of another 6.5% of Adani Wilmar (likely sometime next year), which could reap it an additional $960 million, based on the latest price,” the team writes.

UOB Kay Hian analysts Leow Huey Chuen and Jacquelyn Yow are also keeping their “buy” calls on Wilmar with an unchanged target price of $5.50 after the group’s 1QFY2022 results. The analysts have also maintained their earnings forecast as the shortfall in the 1QFY2022 was “made up by the gain from the stakes dilution in Adani Wilmar”.

“Our current net profit forecast is at US$1.77 billion, US$1.82 billion and US$2.0 billion for 2022, 2023 and 2024 respectively,” they write in their May 5 report.

To the analysts, they are seeing “good improvement” in Wilmar’s China operations in 2QFY2022, especially for the consumer packs and soybean crushing segments.

“Thus, the performance of YKA is likely to be better in 2QFY2022 than in 1QFY2022. In addition, the selective palm product export ban in Indonesia is expected to have a marginal impact on the bottom line if the ban is lifted within a short period of time,” they write. “The real impact on palm downstream margin is from the sharp rise in exports levy,” they add.