Wilmar (SGX:F34)’s recent 1Q24 shows bright spots in consumer and wholesale recovery, especially in China. However, its industrial segments remain under pressure from tightening margins amidst falling commodity prices and weak demand.
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New businesses such as central kitchens show promise, but material earnings contribution is some way off.
Food Products should see margin improvement
In Wilmar's recent 1Q24 release, Food Products saw volumes increase +13.9% y-o-y led by the wholesale-driven Medium Bulk segment. The consumer segment also saw a turnaround from minus growth in 4Q23. This is positive and shows some activity returning to the consumer end of the market.
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Industrial segments dependent on China recovery
The Feed and industrial products saw an acceleration of volumes in 1Q24 (+7% y-o-y vs +4% 4Q23). This is positive especially as the March Caixin China services purchasing managers index (PMI) is showing a pick-up in pace. However, it is too soon to conclude a systemic, economic recovery.
Lower commodity prices have compressed margins in this segment, according to Management. Therefore, volume recovery alone is unlikely to offset overall PBT declines, in our view.
At the same time, sugar merchandising remains pressured. With prices down -13% so far this year since March, we think margins could remain volatile going into 2Q24.
Separately, MIBG expects average FY24E CPO prices to fall -2% y-o-y in US$, which could further pressure upstream margins.
Positively, Wilmar’s Central Kitchen Food Park is on track with take-up rates at 70%. However, we see limited material earnings impact from this in the near term.
Maintain HOLD till better clarity. New target price: S$3.44
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Above is an excerpt from a report by Maybank Research. Clients of Maybank Securities may be the first to access the full PDF report @ https://www.maybanktrade.com.sg/.
