Excerpts from UOB KH report

Analysts: Leow Huey Chuen & Jacquelyn Yow Hui Li

Wilmar International (WIL SP)
4Q22 Results Preview: Earnings Could Beat Expectation

Wilmar is scheduled to release its 2H22 results on 21 Mar 23. Based on our 2022 core earnings forecast of US$2.2b, 4Q22 core net profit could be US$450m-460m and again be driven by palm-related operations.

Wilmar

Share price: 
S$4.11

Target: 
S$5.50

However, based on our channel checks, palm downstream margins and volume could come in higher than our expectations.

As such, we foresee Wilmar’s 4Q22 core profit beating our and market expectations again.

Maintain BUY. Target price: S$5.50.


Wilmar Nodeforest1.21

WHAT’S NEW

4Q22 results preview. Wilmar International (Wilmar) is scheduled to release its 2H22 results on 21 Mar 23 after market closes. Based on our 2022 core earnings forecast of US$2.2b, 4Q22 core net profit could be US$450m-460m, driven by palm-related operations.

For 9M22, Wilmar reported net profit and core net profit (exclude listing gain from Adani Wilmar) of US$1.93b and US$1.78b respectively vs US$1.32b and US$1.30b in 9M21.

Our 2022 core earnings are close to consensus earnings forecast.

• Potential earnings upside. Based on the latest data points and channel checks, we believe there is a possibility for Wilmar to beat our and consensus earnings by 10-15%. The upside surprise will come from:

- Better-than-expected palm oil refining margins. Referring to the estimated palm refining margin chart (next page), 4Q22 margin is well expected to be lower qoq but the margin contraction is not as severe as expected. In addition, exports from Indonesia and Malaysia are also above expectations with strong shipments to China and India in 4Q22.

- Contribution from Yihai Kerry Arawana (YKA) could be better on higher soybean crushing volume and margin. Despite better 4Q22 earnings on the back of Chinese New Year (CNY) demand (2023 CNY falls on the 3rd week of January) and some earnings recovery from soybean crushing, YKA’s 2H22 performance is unlikely to be better than its 1H22 performance of Rmb1.97b (3Q22: Rmb0.4b).


Sugar contributions spread into 1Q23 as sugar cane harvesting in Australia is delayed due to high rainfall. This will lead to lower sugar milling and merchandising volume for 4Q22.

Earnings contribution from the sugar division is not as significant compared with YKA and palm oil operations, thus the slight earnings delays from sugar will be compensated by better profit from the palm oil division.

STOCK IMPACT
2023 earnings may see a reversal trend in terms of segmental contributions.

"Contributions from the palm oil-related business were the best in 2022 and offset the weak profit before tax (PBT) contributions from Yihai Kerry Arawana (YKA)."

Contributions from the palm oil-related business were the best in 2022 and offset the weak profit before tax (PBT) contributions from YKA.

Moving into 2023, YKA could regain the top position in terms of PBT contributions to Wilmar as we expect China’s reopening to boost the sales volume and PBT margins should recover with the easing of commodity prices.

The good palm refining margin achieved in 2022 is unlikely to sustain into 2023. Recall that 2022 palm oil market was distorted by the extreme polices from Indonesia which led to a onemonth ban of exports and a few months of levy holidays to speed up exports in 2H22.

That created that big price distortion between Indonesia’s domestic prices vs global prices, which resulted in a widened price gap between crude and refined palm oil. At this point of time, we do not foresee this situation repeating again in 2023.

EARNINGS REVISION/RISK
• Maintain earnings forecasts. Our net profit forecasts remain at US$2,233m, US$1,853m and US$2,155m for 2022-24 respectively.

VALUATION/RECOMMENDATION
We maintain BUY on Wilmar even though its 2023 earnings may be lower than 2022 as its integrated business model enables Wilmar to extract the best value from the business value chain. This integrated business model has delivered a stellar three-year CAGR of 21% of core net profit for 2019-22.

Maintain BUY with a target price of S$5.50. Our target price is derived using the SOTP valuation by pegging a 2023F PE of 17x for the China operations and a blended 11x PE for the non-China operations. The fair value of S$5.50 translates to a blended 2023F PE of 15.3x


SHARE PRICE CATALYST
• Stronger-than-expected performance from its China operations.
• Surprise margin upside with its strategic procurement activities.

Full report here

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