A record-breaking net profit for FY21
? Wilmar’s final FY21 core net profit beat expectations, thanks to higher CPO prices and refining margins. However, final dividend was broadly in line.
? We project FY22F core net profit to fall 3% due to weaker crush margins.
? Reiterate Add, but with a lower TP of S$5.69. We like Willmar due to its attractive valuations and plans to unlock its value for shareholders.
Final results above expectation thanks to higher refining margin
Wilmar posted a 31% yoy rise in its 2H21 core net profit to US$1.1bn, driven by good processing margins as well as higher palm oil and sugar prices. This brought FY21 core net profit to a record high of US$1.84bn (+24% yoy), above our and Bloomberg consensus estimates by 16% and 5%, respectively. The better-than-expected 2H earnings were driven by stronger-than-expected refining margin and CPO prices which more than offset the weaker results from its food products and associates. 90%-owned YKA posted a 31% yoy fall in net profit to US$647m (34% of Wilmar’s FY21 net profit). The record core net profit of RM1.84bn achieved in FY21 is 49% higher than its historical 10-year average net profit of RM1.23bn. A final dividend of S$0.105 was declared, bringing full-year dividend to S$0.155, broadly in line with expectations.
Integrated business model delivers record earnings
Wilmar posted a 24% rise in core net profit in FY21, driven by higher downstream margins and CPO prices. The feed and industrial segment (tropical oils, oilseeds and grains and sugar) pretax profit grew 58% in FY21, thanks to higher processing margins and stronger demand for tropical oils products but this was partially offset by thin soybean crushing margins. The group’s plantation and sugar milling pretax profit jumped more than fivefold to US$564m in FY21 due to higher CPO and sugar prices. However, these were partially offset by the 41% decline in PBT from its food products segment due to the time lag in passing on rising raw material costs to the selling prices of its consumer products.
Mixed signals for 2022F earnings
We are positive on Wilmar’s upstream palm oil business as it benefits from high CPO prices. Its mid-to-downstream palm business could benefit from the higher volatility in commodity prices if it continues to execute timely purchase of raw materials. However, the food products segment could be affected by higher raw material prices, slower demand growth and government regulations to limit price hikes on essential food items. On top of this, the group expects soybean crushing to be challenging in view of high soybean prices and poor hog farming margins in China. We raise our earnings forecasts for FY22 to reflect
higher CPO price and processing margins. Our SOP-based TP is cut to S$5.69, after we revised it to reflect the market capitalisation of YKA and Adani Wilmar. The implied FY22F P/E at our revised TP is 15x. Maintain Add as Wilmar offers attractive FY22F P/E valuation of 12.3x and dividend yield of 3.6% for FY22F; these could re-rate its stock. Key downside risks: inability to pass on rising costs and lower processing margin.