PETALING JAYA: Singapore-listed Wilmar International Ltd, world's largest agribusiness trader, came under sellling pressure after it guided that its profit for the second quarter (Q2) 2016 will be affected by its grains, oilseeds and sugar businesses.
According to analysts, Wilmar which is an 18.55%-owned company of Robert Kuok’s PPB Group Bhd made untimely purchases in soybean, which resulted losses for the quarter. Wilmar is expected to release its second quarter (Q2 2016) result on Aug 11.
Yesterday, Wilmar shares fell as much as 12% to a low of S$2.97 before closing 19 cents lower at S$3.16.
Wilmar issued a profit warning to the Singapore Exchange on Tuesday that it expected to report net losses of about US$230mil for Q2 2016 as a result of challenging operating conditions. It said that the prospects were flagged in the company’s results announcement for the first quarter ended March 31, 2016.
However, the world’s largest agribusiness trader maintained that it was expected to be profitable, “although profit is expected to be significantly lower than the corresponding six months period ended June 30, 2015.”
The Q2 2016 losses were largely attributed to the manufacturing sub-segment within oilseeds and grains and partially to the sugar segment, whilst the tropical oils segment and consumer products subsegment continued to perform satisfactorily.
Wilmar also said: “The long term prospects of the group are stronger as it continues to execute on its stated growth strategy, demonstrated by recent developments in ventures in Vietnam and India.
“Barring unforeseen circumstances, operating environment for the group for the rest of the year is expected to normalise.”
CIMB Equities Research meanwhile is “negative” on the news as Wilmar’s preliminary net losses of US$230mil in Q2 2016 is below market expectations of a profitable Q2.
Although the group had warned of a challenging operating environment in the second quarter, the research unit said it had not expected it to sink into its first quarterly losses since listing.
This is the first time that the profits of other segments were not able to cushion the losses from its oilseeds and grains division, CIMB said adding that this could raise concerns over the low visibility of the group’s earnings.
On the home front, PPB Group Bhd saw its shares being traded at its lowest since July 8 to close 34 sen lower at RM16.26 yesterday.
PPB Group in a filing with Bursa yesterday advised its shareholders and investors to be cautious as the group’s financial results would be adversely impacted by Wilmar’s weaker financial performance.
“Details of the PPB Group’s financial performance will be disclosed when PPB announces its consolidated financial results for the respective periods,” it said.
“Shareholders and investors are advised to exercise caution when dealing in the shares of the company,” it said.
Kenanga Investment Research in its latest report has downgraded PPB to “underperform” as Wilmar’s earnings risk is likely to weaken investor sentiment on PPB.
The research unit said: “Although we noted the potential for weaker crush margins in the oilseed and grains segment, the degree of loss comes as a negative surprise to us.
“However, the management expects the operating environment to normalise in second half of 2016.
“While we agree with management’s assessment, we expect volatile commodity prices to persist in the mid-long term due to erratic weather and potential rate hikes in the US, which could extend Wilmar’s earnings risk.”