Wilmar International - Maybank Research 2024-05-06: Some Improvements, But Headwinds Remain. Wait For Better Days.

• 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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Thilan Wickramasinghe Maybank Research | https://www.maybank-ke.com.sg/ 2024-05-06 SGinvestors.io

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