Wilmar International - UOB Kay Hian 2022-10-31: 3Q22 Record Quarterly Profit; Way Above Expectation

• Wilmar reported 3Q22 core net profit of US$797m (+38% y-o-y, +67% q-o-q). Results were way above expectation, driven by stronger-than-expected contributions from tropical oil.
• YKA’s performance in 3Q22 was below expectation where we suspect the negative variance came from lower-than-expected margins from its food products and soybean crushing.
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Wilmar's 3Q22 results way above expectation.

• Wilmar International (SGX:F34) reported core net profit of US$796.7m (+67% q-o-q, 38% y-o-y) for 3Q22, another record-high quarterly earnings. Wilmar's 9M22 core net profit was reported at US$1,777m, accounting for 99% of our full-year forecast. This exceeds our and consensus expectations mainly driven by the strong feed & industrial segment with overall sales volume growing 14% q-o-q and 9% y-o-y in 3Q22 and potentially strong processing margins from its tropical oil.
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• Star performer – feed & industrial segment. The feed and industrial products segment remains the star performer with strong sales volume in 3Q22. As Yihai Kerry Arawana’s (YKA) results were disappointing with reported 3Q22 net profit only at RMB377m (-47% y-o-y), we reckon that the tropical oil segment was the main contributor to the high earnings. This is driven by both higher sales volume and very good palm oil downstream processing margins.
• Food products: Higher sales but lower margin y-o-y. Both food products and the medium and bulk’s segment sales volume had improved significantly q-o-q in 3Q22, where we reckon that this was supported: by
  1. the festive season,
  2. the lockdown of cities in China, as it induces higher demand for consumer pack cooking oil, and
  3. Wilmar‘s factories still being allowed to operate in most of the lockdown cities by the Chinese government.
• Feed & industrial products: Palm oil processing likely to be the main earnings contributor and sugar performance is also catching up as merchandising sales volume picked up in 3Q22. YKA reported net profit of RMB377m (or US$52m) only for 3Q22, which means the bulk of Wilmar’s earnings would have to come from its tropical oils and some from its sugar division.
• As highlighted in our preview note, palm processing margins are good as crude palm products prices dropped more than refined palm products and also help with the export levy holidays in Indonesia.
• Plantation & sugar milling segment continue to perform satisfactorily with good ASP and higher sales volume. Although CPO prices weakened significantly compared with 1H22, the palm oil upstream is likely to still profitable with better performance coming from its Malaysian operation. Sugar milling also started contributing in 3Q22 as milling season started despite achieving a lower volume.

YKA’s 3Q22 was disappointing.

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Leow Huey Chuen UOB Kay Hian Research | Jacquelyn Yow Hui Li UOB Kay Hian | https://research.uobkayhian.com/ 2022-10-31 SGinvestors.io

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