August 11, 2017

Wilmar’s 2Q17 revenue increased 13.2% YoY to US$10.6b, driven by stronger commodity prices as well as higher sales volume from Oilseeds & Grains and Sugar. Net profit was US$60.2m vs. a loss of US$220.1m in 2Q16 due to one-off losses, while core net profit was US$37.3m. The key difference was mainly gains from investment securities on improved equity market conditions.

PBT was mixed across segments — Tropical Oils was down 68% YoY to US$59.5m, Sugar had a higher pretax loss of US$106.8m vs. a loss of US$78.7m last year due to seasonality factors, while Oilseeds & Grains’ PBT was US$61.1m vs. a loss of US$343.8m last year. 1H17 revenue rose 15% YoY to US$21.2b and met 48% of our FY17 estimate, while net profit of US$421.8m formed 37% of our full-year estimate, which we deem to be slightly below our forecast.

Despite better production volume, Tropical Oils segment’s merchandising and processing businesses faced a challenging environment, which resulted in lower profits and PBT margin at a low. On CPO price outlook, OCBC Treasury Research remains bearish and expects palm oil price at MYR2,250/MT for year-end. Nonetheless, the group expects this segment to perform better in 2H17, underpinned by improvements in production yields and better margins from downstream operations.

Oilseeds & Grains segment’s positive PBT was helped by a higher crush volume and positive crush margins. But we note that the segment’s PBT was down 71% QoQ, possibly due to lower crushing margins in the quarter. The group expects crush margins to remain positive for the rest of the year. In addition, Consumer Products is also expected to improve with the seasonal peak period ahead. Separately, Sugar will still be affected by price volatility – prices are down ~30% YTD.

There will be an analyst briefing today. We trimmed our estimates and keep our HOLD with a slightly lower FV estimate of S$3.66 (previous: S$3.70) as the group’s long term growth story remains intact. Separately, a higher interim dividend of S$0.03/share has been declared, vs. S$0.025/share last year. –OCBC

Wilmar closed at: S$3.200