<Result Analysis> Lower input cost kicks in , margin recovery on the horizon
- Wilmar 4Q23 core net profit of US$666.1m (+42.4% y-o-y, +105.7% q-o-q) beat our expectation on the back of US$231m gain from Moroccan associate disposal and lower input cost
- Wilmar also announced final dividend of 11Scts per share, bringing the FY23 total dividend to 17Scts per share (flat y-o-y)
- We expect sustained margin recovery in 2024 on better processing margins, maintain BUY and TP of S$4.30
What’s new
- 4Q23 core net profit exceeded our expectations, driven by gains from asset disposal and lower input cost. In 4Q23, Wilmar’s core net profit of US$666.1m (+42.4% y-o-y, +105.7% q-o-q), surpassed expectations, driven by lower-than-expected input costs amid a soft commodities price environment in 4Q23, as well as a US$231m gain from a Moroccan associate disposal in 4Q23. The strong 4Q23 net profit resulted in FY23 net profit reaching US$1,567m (-36% y-o-y), exceeding both consensus and our FY23F earnings estimates by 32% and 22% respectively. Wilmar declared a dividend of Scts11/share (70% payout ratio, 2H23 core EPS Scts15.6/share), implying dividend yield of 3.3% and bringing the FY23 total dividend to Scts17/share (flat y-o-y). While Wilmar posted strong margin performance, its 4Q23 revenue reflected the lower commodities price trend, partially impacting its selling price. Wilmar’s 4Q23 revenue reached US$11.9 billion (-35% y-o-y, -47.3% q-o-q), which was largely in line with our estimate.
Our view
- Maintaining our BUY rating with a target price of S$4.30. We believe Wilmar will perform well in 2024, primarily due to stable soft commodities price trend and cost efficiency strategies. Wilmar is poised to capitalize on its integrated platform and remain nimble in the face of any challenges that may arise this year. Additionally, the improvement in refined palm oil products demand will also help Wilmar in achieving better earnings in the tropical oil segment, despite the current thin palm oil refining margins trend. We forecast a core net profit of US$1,728 million (+10% y-o-y) in FY24F. Wilmar is trading at FY24F PE of 9.0x, which is at -1 SD of its five years average PE multiple of 11.2x. We believe the market has not yet factored in Wilmar’s earnings recovery outlook at current share price level.
Segmental discussion
Food Products
- Profit Before Taxes (PBT) for Food products recovered to US$213.3m (+2% y-o-y) in 2H23, higher than 1H23’s US$83m. Meanwhile FY23’s PBT dropped to US$294.9m (-60% y-o-y) in FY23, dragged down by weak performance in 1H23, where higher feedstock costs for flour impacted Wilmar’s margin. In the corresponding period in FY22, Food products PBT had been boosted by a US$175.6m gain from the dilution of Adani Wilmar IPO.
- The overall sales volume growth in food products was mainly driven by a higher volume of flour and rice sales, in line with the expansion of flour and rice processing capacities.
Feed and Industrial Products
- Improving oilseeds and sugar businesses helped Feed and Industrial Products segment achieve a better PBT of US$527.7m (-50% y-o-y) in 2H23 compared to 1H23’s US$399m (-21% y-o-y). PBT for Feed and industrial products reached US$926.7m (-41% y-o-y) in FY23 as the tropical oils business was impacted by weaker margins for mid and downstream operations, especially in 2H23.
- Overall sales volume grew by 10% y-o-y to 61.2m MT in FY23, while revenue of US$41.4 billion was 7% lower y-o-y, owing to weaker commodities price trend.
Plantation and Sugar Milling
- PBT from this segment tripled y-o-y to US$437m in 2H23, mainly driven by a gain from the disposal of the Moroccan associate of US$231m. Additionally, firm sugar prices and higher sales volumes supported the performance of the sugar business.
- Despite the improvement, Plantation and Sugar Milling PBT in FY23 was 12% y-o-y lower at US$500.1m, mainly due to a lower palm oil price trend y-o-y.
Balance sheet
- Challenging overall operations resulted in a lower net profit and a Return on Average Equity (ROAE) of 7.6% in FY23 (compared to 12.0% in FY22). However, benefiting from a lower working capital requirement, Wilmar achieved a lower debt-to-equity ratio of 0.88x in FY23 (compared to 0.94x in FY22). Wilmar anticipates that the net finance cost will have peaked in 2023, given the lower gearing level outlook and cheaper financing costs from Renminbi loans.
Quarterly operational and financial summary
Segmental Profit Before Taxes (PBT) summary
Source : Company, DBS Bank