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DBS: Wilmar – Buy Target Price $6.67

Posted on August 9, 2022August 9, 2022 By alanyeo No Comments on DBS: Wilmar – Buy Target Price $6.67

<Result Analysis> Strong performance amid commodities price and geopolitical volatility

  • Wilmar’s 1H22 core net profit reached US$1.16bn (+58% y-o-y), above our estimate 
  •  Successfully navigated commodities price and geopolitical volatility 
  • Maintain BUY with TP of S$6.67

What’s new

  • 1H22’s core net profit reached US$1.16bn (+58% y-o-y), above our and consensus forecast. Wilmar’s 2Q22 net profit expanded by 31.4% q-o-q to US$652m (+111% y-o-y) as it successfully raised prices in food products division without losing sales volume. Wilmar also navigates the commodities price volatility very well. 1H22 earnings accounted for 61% of our FY22 core net profit forecast of US$1.9bn (+2.3% y-o-y). Wilmar will distribute interim dividend of Scts6/share (DPR: 32%).
  • Food products:Profit before taxes (PBT) climbed by 22% y-o-y to US$520.5m in 1H22. There was a US$175.6m gain on dilution of interest in Adani Wilmar (AWL) in 1Q22. Meanwhile in 2Q22 the Group made upward price adjustments to its consumer products to mitigate the impact of rising commodities price. Sales volume (bulk+ consumer products) grew by 4% y-o-y to 13.8m MT despite COVID-19 resurgence in China.
  • Feed & industrial products: Benefited from recovering soybean crushing margins. The segment reported PBT of US$502.7m (+5% y-o-y) in 1H22 on soybean crushing margin recovery and higher crushed soybean volumes. Overall profit was partially impacted by weaker sugar merchandising activities. Meanwhile, tropical oil business was impacted by challenging Indonesia government policies in 2Q22.
  • Plantation & sugar milling: PBT expanded >100% y-o-y to US$453m in 1H22. Profit for the segment more than doubled y-o-y, driven by the higher palm oil price and better performance of the sugar milling operations in India. 
  • Cash flows and balance sheet. Amid commodities price volatility, Wilmar successfully kept the cash conversion cycle (CCC) at 89 days (1H21: 90 days). Net debt to equity ratio climbed to 0.99x in 1H22 (1H21: 0.89x) on higher working capital requirement. 

Our view 

  • Positive earnings momentum will sustain in 2H22. Wilmar’s integrated and diversified business model and the prudent risk management would enable the group to deliver good earnings amid commodities price ,  geopolitical volatility, and unusual weather conditions. 
  • We maintain our BUY rating with TP of S$6.67.  Wilmar is trading at FY23 PE of 9.5x, -2 standard deviation of its five years average PE multiple of 11.8x. We think investors have mispriced Wilmar as an upstream plantation company at this share price level, despite Wilmar’s well-integrated business platform that is consistently profitable even amid commodities price volatility. 

Quarterly financial summary 

 2Q221Q223Q212Q21y-o-yq-o-q1H221H21y-o-y
 US$mUS$mUS$mUS$mchangeChangeUS$mUS$mChange
Revenue18,55817,57617,13515,27121.5%5.6%36,13429,53422.3%
EBITDA1,2421,1081,14079755.9%12.2%2,3501,88424.7%
Net Profit635530569301111.0%19.7%1,16575155.1%
Core Net Profit652503576308111.4%29.5%1,15573257.8%
          
EBITDA margin6.7%6.3%6.7%5.2%  6.5%6.4% 
Net Profit margin3.4%3.0%3.3%2.0%  3.2%2.5% 
Core Net Profit margin3.5%2.9%3.4%2.0%  3.2%2.5% 
          
          
Sales Statistics (‘000MT)         
Food Products         
Consumer Products1,9412,3302,2311,61820.0%-16.7%4,2714,1034.1%
Medium Pack and Bulk4,9794,5755,2374,7195.5%8.8%9,5549,2133.7%
          
Feed and Industrial Products         
Tropical Oils4,8905,0585,8755,776-15.3%-3.3%9,94810,969-9.3%
Oilseeds and Grains5,5194,0984,9924,93211.9%34.7%9,6179,0746.0%
Sugar2,4912,7182,7143,700-32.7%-8.4%5,2096,133-15.1%
          
Operating cashflow before working capital changes863654985750     
Cashflow from operating activiities 222(496)2,064(1,489)     
Net Debt19,56118,47115,69816,886     
Equity attributable to owners of the Company 19,80520,30319,26519,013     
Segmental PBT (US$m)1H20222H20211H20211H22/1H21FY2021FY2020y-o-y
Food product520.5252.6428.322%           681     1,152  -41%
Feed and industrial product502.7782.2478.85%        1,261        796  58%
Plantation and sugar milling435.8400.1164166%           564        105  438%
Others2.238.58.7-75%             47          59  -20%
Joint Ventures & Associates153.180.3139.210%           220        202  9%
Unllocated expenses-2.9-3.3-3.5-17%             (7)          (3)100%
Profit before taxes    1,611     1,550             1,216  33%        2,766     2,311 20%

Source : Company, DBS Bank 

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Research - Equities Tags:Wilmar

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