Aiming for recovery in 2H23
- Earnings could bounce back in 2H23 and 2024
- Branded consumer products and central kitchen business will be Wilmar next growth driver in China
- Refining and crushing businesses are strong pillars for Wilmar downstream expansion
- Maintain BUY with lower TP of S$5.30
Earnings set to recover in 2H23 and 2024
We revised down our FY23 earnings forecast by 15% to US$1.7bn (-29.6% y-o-y) to account for weaker than expected earnings in 1H23 mainly on low palm oil refining profit and slower than expected recovery in China’s economy. Earnings have retreated from its 2022 peak on the absence of unusually high commodity prices at its mid-stream and upstream divisions mainly tropical oill.
We account soft 1H23 earnings performance as we reckon Wilmar’s tropical oil refining margins may remain weak, plus the slower than expected economic recovery in China may hinder major q-o-q earnings performance expansion from food products as well as soybean crushing margin division. After posted relatively weak earnings in 1Q23, we think the situation didn’t improve immediately in 2Q23 as we see the palm oil refining profit margin didn’t improve meaningfully yet.
Our 2023 earnings forecast implies better earnings performance in 2H23. We estimate Wilmar will post around US$500m earnings per quarter, benefitting from a combination of (i) recovering palm oil refining margin, and (ii) stronger China operation mainly on improving soy crushing margin on stronger soymeal demand, as well as improving profitability at its food products division.