Felicia Tan
UOB Kay Hian analysts Leow Huey Chuen and Jacquelyn Yow are maintaining their “buy” calls and target price of $5.50 on Wilmar International ahead of its results.
The agri-business group will be releasing its financials for the 2QFY2022 and 1HFY2022 on Aug 4 after market close.
Before the announcement, the analysts are keeping their earnings estimates unchanged.
For the 2QFY2022, Leow and Yow are expecting Wilmar to bring in a core net profit of US$300 million ($420.4 million) to US$330 million. For the 1HFY2022, the analysts are expecting the group’s core net profit to come in at US$628 million to US$658 million.
While the second quarter is usually a quieter one with weaker overall sales volume, Leow and Yow see this quarter’s sales volume being affected by the weaker sales for tropical oils and sugar merchandising.
That said, the main earnings driver will come from the higher average selling prices (ASPs) for palm products and better margins from Wilmar’s Malaysia downstream and palm products that are not under the exports ban list.
In addition, the high palm oil and sugar prices would be the main supports to 2QFY2022 earnings, compensating the weaker sales volume, they write.
Wilmar’s earnings for the 1HFY2022 should be mainly supported by palm and sugar operations, while operations in China should be able to turn around in 2HFY2022.
Wilmar’s sugar milling division is also likely to see a “strong contribution” in the 2HFY2022 as thanks to the higher sugar production and sales volume in Australia coupled with high sugar prices.
In addition, the recent weakness in agri commodity prices will translate into higher margins in the 4QFY2022.
The analysts are also expecting to see higher sales volumes in the 2HFY2022 due to festive demand.
“The pressure on profit margin on the consumer pack business should ease with the recent sharp price correction in almost all of Wilmar’s feedstock, although its palm upstream operation could see lower contributions,” they write.
In China, the analysts are expecting Wilmar’s subsidiary, Yihai Kerry Arawana’s (YKA) earnings to be better q-o-q in the 2QFY2022, but down y-o-y due to margin pressures.
“[YKA’s] 1HFY2022 earnings should still be significantly lower y-o-y due to the sharp drop in 1QFY2022, which cannot be made up by its 2QFY2022 performance,” they say.
That said, the analysts are expecting to see better contributions for YKA in the 2QFY2022 from higher sales volume and slight improvements in its margins.
“Higher consumer pack sales as household usage increases during the major cities’ lockdown compensated for the weaker sales for medium pack and bulk. In addition, selling price adjustments to consumer products will also help to ease the margin pressure marginally,” the analysts note.
In addition, contributions from oilseeds and grain should support YKA’s bottom line in the 2QFY2022.
The way they see it, YKA’s contributions from rice and flour should remain steady, while soybean crushing should see improvement on the back of higher crush volume and margins.
“China soybean crushing volume picked up significantly in 2QFY2022 vs 1QFY2022 with the arrival of soybeans from Brazil,” the analysts note.
“With higher utilisation rates and better animal feed sales, we should see better contributions from the oilseeds & grain division in 2Q22 to compensate for the weakness in 1QFY2022,” they add.
For the FY2022, FY2023 and FY2024, the analysts are also keeping their earnings forecasts with net profit estimates of US$1.77 billion, US$1.82 billion and US$2.0 billion respectively.