Wilmar International - CGS-CIMB Research 2022-11-01: On Track For Another Record-Breaking Year

Wilmar International - On Track For Another Record-Breaking Year

  • At its results briefing, Wilmar (SGX:F34) explained that its solid 3Q core net profit was driven by higher plantation and downstream palm processing earnings, hedging gains, associates' contribution and lower effective tax rate.
  • We gather that Wilmar's associates in India (Adani Wilmar, AWL) and Africa (palm oil operations) did well in 3Q22. On top of this, its effective tax rate was lower as the group’s offshore hedging profit in Singapore was strong in 3Q and the corporate tax rate for this business was only 5%.
  • To recap, Wilmar posted a 38% y-o-y rise in its 3Q22 core net profit to US$797m – a new high and significantly ahead of market expectations. See Wilmar International - CGS-CIMB Research 2022-10-28: Third Consecutive Quarter Of Record Net Profit. Wilmar also indicated that the record profit achievement would not have been possible if the group had not invested in building its downstream capacities to grow its operations over the past decade; this is now bearing fruit.
  • Wilmar is cautiously optimistic about its 4Q22F earnings performance; we sense that it sees a repeat of the stellar results in 3Q22 as a tall order.
    • Wilmar expects the palm processing margin to decline q-o-q in 4Q22F. On top of this, the hedging gains and lower effective tax rate achieved in 3Q22 may not be sustainable going into 4Q22F. However, this will be partly buffered by stronger performance from YKA due to positive crush margin in China and better profit margin for its food products segment as the impact of price hikes for consumer products will be fully captured in 4Q22F.
    • Wilmar indicated that its sugar performance should also do reasonably well in 4Q22F due to favourable refining margin and sugar prices.
  • Our SOP-based target price for Wilmar is unchanged at S$4.68. Wilmar's share price currently trades at P/E of 9.4x, below its 10-year historical average P/E of 12.6x. It is also trading at only 0.78x P/BV and offers dividend yield of 5.9%.
  • Wilmar is undervalued as the current market value of its 90% stake in YKA and 44% stake in AWL of US$30.3bn is 77% higher than its market cap of US$17.1bn. We are positive on Wilmar’s medium-term earnings prospects due to its capacity expansion plans, venture into central kitchen operations in China and strong ESG practices.

Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.

Ivy NG Lee Fang CFA CGS-CIMB Research | Nagulan RAVI CGS-CIMB Research | https://www.cgs-cimb.com 2022-11-01

Previous report by CGS-CIMB:
2022-10-28 Wilmar International - Third Consecutive Quarter Of Record Net Profit.

Price targets by 2 other brokers at Wilmar Target Prices.
Listing of research reports at Wilmar Analyst Reports.

Relevant links:
Wilmar Share Price History,
Wilmar Announcements,
Wilmar Dividends & Corporate Actions,
Wilmar News Articles

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