3Q22 results could beat expectations
- Wilmar’s earnings likely stayed strong in 3Q22, beating Bloomberg consensus core net profit forecast of US$445m.
- Higher food product margins, relaxation of CPO export policy are key drivers.
- A good set of 3Q results, plans to unlock undervalued assets, and 5.8% dividend yields are key catalysts. Reiterate Add, with a lower TP of S$4.68.
3Q22 results preview: another good quarter
We project Wilmar International to report a core net profit of c.US$600m-650m for 3Q22 — broadly in line with 2Q22’s US$652m but higher than 3Q21’s US$576m and Bloomberg consensus forecast of US$445m. Wilmar is due to release its 3Q22 results on 28 Oct. 3Q has traditionally been its best earnings quarter, driven by festive demand and seasonally higher palm oil output. Also, sugar profit contribution kicks in during 3Q (Jun-Nov is the crushing season for sugar cane in Australia). Wilmar’s 3Q22 tropical oil segment should have benefited from Indonesia’s move to waive palm oil export levy till end-Oct and raise the domestic market obligation (DMO) to 9x, after the lifting of its palm oil export ban (28 Apr-23 May). This boosted exports volumes, leading to better economies of scale and downstream margins. According to Indonesian Palm Oil Association (GAPKI), Indonesia exported 7m tonnes of palm oil in Jul-Aug 22 (two months), 37% above the 5.1m tonnes exported in 2Q22 (three months). We expect Wilmar’s food products segment to show sequential earnings improvement from declining cost of raw materials, which should benefit its consumer pack cooking oil business in China. Its rice and flour consumer product segments in China are less affected by the rising global commodities prices as the raw materials are sourced locally. However, the soybean crush margin is likely to stay pressured as the average back-to-back soybean crush margin in China fell to – US$36/tonne in 3Q22 from +US$21/tonne in 2Q22 before improving to +US$105/tonne currently. Plantation earnings likely fell qoq in 3Q22 due to lower CPO prices.
Upgrade earnings for FY22F; near- and long-term catalysts
We raise our FY22F EPS forecast by 14% (to reflect better-than-expected profit margin for the tropical oil and food product segments) but cut our FY23F-24F EPS by 3-8% as we assume lower sales volumes in view of slower global growth. Wilmar’s share price has declined 15% YTD despite strong 1H22 earnings. We attribute this partly to concerns over rising interest rates, strong US$, weaker commodity prices and geopolitical risks. A potential better-than-expected 3Q22, which could lead to an earnings upgrade, and a
stronger final dividend for 4Q22F could catalyse its share price in the near term. We see opportunities for Wilmar to unlock value from its existing listed entities when the shareholding moratorium for Yihai Kerry Arawana ends in Oct 2023. Wilmar offers deep value — it trades at P/E of 7.8x and P/BV of 0.75x and offers a dividend yield of 5.8%. We are positive on the group’s medium-term earnings prospects due to its capacity expansion plans, ventures into central kitchens in China and strong ESG practices. We cut our SOPbased TP to S$4.68/share to reflect the weaker share prices of its listed subsidiaries.