WILMAR: Best 3Q core earnings since listing; target $6.15

Wilmar posted its best 3Q core earnings since listing
Wilmar posted a 15% yoy/87% qoq rise in its 3Q21 core net profit to US$576m, despite 90%-owned Yihai Kerry Arawana (YKA) recording a 66% yoy decline in 3Q21 reported net profit to US$111m (19.5% of Wilmar’s net profit).

The strong 3Q earnings were driven by better performance from tropical oils as well as the plantation and sugar milling segments.

This brought 9M21 core net profit to US$1.31bn (+15% yoy), above estimates as it made up 82%/81% of our/consensus full-year forecast.

90%-owned YKA posted a 9M21 reported net profit to US$575m (-27% yoy or 43% of Wilmar’s net profit).

Over the past 11 years, 9M core net profit on average made up 68% of its full-year core net profit.

Key takeaways from 3Q21 results
The feed and industrial segment (tropical oils, oilseeds and grains and sugar) benefited from higher processing margins (timely purchase of raw materials) and stronger demand for downstream tropical oils products (festive seasons) during 3Q21.

Sales of tropical oil products grew 5% yoy to 5m tonnes in 3Q21. The group said that soybean crush margin was weaker yoy in 3Q21 but recovered from its trough.

The plantation and sugar milling division benefited from firm CPO and sugar prices in 3Q21, partially offset by weaker performance from the food products segment due to the time lag in passing on rising raw material costs to the selling prices of its consumer products (30% of total sales volume for food products in 3Q21).

The group also indicated that sales volumes of food products grew 0.7% yoy in 3Q21 as sales volumes for consumer products fell by 9.2%yoy to 2.2m tonnes in 3Q21.

However, this was more than offset by a 5.5% yoy rise in sales volume of medium pack and bulk products to 5.2m tonnes in 3Q.

Its joint ventures and associates contribution was also weaker yoy in 3Q21.

Reported net profit grew at a lower rate of 6% than core net profit due to non-operating losses from investment securities. 9M21 core net profit rose 15% on higher processing margins and CPO price.

Reiterate Add, with an unchanged SOP-based TP of S$6.15
Wilmar believes the feed and industrial segments will perform well in 4Q as processing margins for tropical oils are expected to remain resilient.

Plantation and sugar milling will continue to benefit from higher palm oil and sugar prices.

It also expects its crush margins to stay positive for the rest of the year.

However, the food products segment could be affected by higher raw material prices in 4Q21.

Ivy Ng, analystWe keep our SOP-based TP of S$6.15 and Add rating. We remain positive on the group due to its attractive valuations and plans to unlock value. A key catalyst is its initiative to list 50%-owned Adani Wilmar. A key risk is the inability to pass on higher raw material costs.