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Wilmar International (WIL SP) Summary

Core Content

Wilmar International is a leading player in the food value chain, with a current share price of SGD3.27 and a target price of SGD3.94, representing a 21% increase. The company's market capitalization is USD16.8 billion, with an average daily trading volume of USD16 million. The report recommends a "BUY" rating, with the target price unchanged from previous estimates, based on a 15x FY14E P/E ratio.

Main Growth Drivers

• Recovering soybean crushing margins in China: Wilmar is the largest soybean crusher in the country. Despite weak performance in Q1 and Q2 2014, the report anticipates a recovery in Q3 and beyond, driven by:

  • Declining feedstock costs due to oversupply and falling international soybean prices.
  • Recovery in soymeal prices in China as bird flu demand effects subside.
  • A growing premium in domestic soybean prices over international prices, which could improve margins.

• Sugar price rebound: Wilmar is a major sugar producer, with operations in Australia, New Zealand, Indonesia, and strategic investments in Morocco and India. The report suggests that sugar prices may be bottoming out, with a potential deficit in 2015 due to reduced supply and increased ethanol demand. Wilmar's sugar division is expected to contribute significantly to pre-tax profits by FY16E.

Key Acquisitions

Wilmar has made several acquisitions in 2014 to diversify revenue sources and strengthen its position in the food value chain:

• Shree Renuka Sugars Ltd (USD200m): An integrated sugar and ethanol company in India, enhancing its presence in Brazil and India.
• Goodman Fielder: A leading consumer company in Australia, providing exposure to rising demand for high-quality food in Asia.
• 50-50 JV with Repi: Involves edible-oil refinery and specialty fats production in Ethiopia.
• 55-45 JV with Great Wall Food Stuff: Sugar production and marketing in Myanmar.
• These acquisitions are expected to generate synergies and diversify revenue streams.

Financial Highlights

Short-Term Earnings Volatility

• Wilmar's net profit for 2Q14 is expected to be USD185 million, down 15% YoY but up 14% QoQ.
• The report anticipates continued short-term volatility due to weak soybean crushing margins and low soymeal prices.
• However, it emphasizes staying invested due to long-term growth potential.

Strategic Positioning

• Wilmar's extensive operations and acquisitions position it well for future growth in both soybean crushing and sugar production.
• The sugar division is expected to contribute 25.2% to FY16E group pre-tax profits, up from 7.1% in FY13.

Market Performance

• Wilmar's share price has shown mixed performance over the past 12 months, with a 3.8% absolute gain but a 0.9% underperformance relative to the market index.
• The company's P/E ratio has been fluctuating, with a current reported P/E of 13.0 and a core P/E of 14.0.
• P/BV ratio is also declining, suggesting potential undervaluation.

Key Ratios

• Core P/E (x): 14.0, 12.9, 12.5, 11.1, 10.0
• P/BV (x): 1.3, 1.2, 1.1, 1.0, 1.0
• Net Debt/Equity (%): 103.1, 102.7, 93.3, 87.4, 80.9
• Core Net Profit Growth (%): 7.8, 3.8, 12.7, 10.9
• EBITDA Growth (%): 0.5, 13.4, 11.8, 8.4

Long-Term Outlook

• The report forecasts an EPS CAGR of 11.8% over FY15E-16E, following a muted growth of 3.8% in FY14E.
• Wilmar is expected to benefit from long-term trends such as:
  • Regulation of shadow banking: This is expected to reduce soybean oversupply and stabilize prices.
  • Pork-price upcycle: As pork prices recover, soymeal demand is expected to rise, improving crushing margins.

Conclusion

Despite short-term earnings volatility, Wilmar International remains a strong long-term investment due to its dominant position in soybean crushing and its strategic diversification into sugar production and related industries. The report maintains a "BUY" rating with an unchanged target price of SGD3.94, based on historical P/E averages.