PETALING JAYA: Higher contributions from the sale of premium products and lower raw material costs are expected to support Wilmar International Ltd’s earnings in the quarters ahead, according to UOB Kay Hian (UOBKH) Research.
Singapore-listed Wilmar, whose operations encompasses the entire value chain of the agricultural commodity business, is an 18.8%-owned associate of PPB Group Bhd
.
Contribution from its 18.8%-owned associate, Wilmar International Ltd was up 40% to RM2.10bil in the financial year 2022 (FY22).
PPB said in its 2022 annual report that Wilmar’s performance will continue to contribute substantially to its overall profitability.
PPB added that it relied to a large extent on contributions from Wilmar to meet one of its key objectives in FY22, which is to reward shareholders with sustainable and consistent dividends.
UOBKH Research said Wilmar’s core profit for the second quarter of 2023 (2Q23) is expected to match its core profit in 1Q23 of US$382mil (RM1.7bil).
“The positive surprises are the management’s guidance on the palm refining margin outlook that exceeded our expectations, and better oilseed performance,” the research house said in a report yesterday.
UOBKH Research noted that while consumer pack sales will likely be flattish, lower raw material costs should cushion the decline.
Margins are also expected to remain on the upside underpinned by better contributions from the sale of premium products.
“The medium pack and bulk products segment is expected to maintain its 1Q23 performance, and continue to see higher sales volume,” said the research house.
Palm refining margins are expected to see improvement on a quarter-on-quarter (q-o-q) basis, even though it may not be as good as last year.
Moreover, the research house stated the current soybean crushing margin still remains negative, although it is improving as compared with that of 1Q23.
“There should also be better sales volume as palm oil production is expected to recover in 2Q23.
“The slight negative crushing margin is mitigated by timely sourcing of soybean and also higher sales volume for soybean meal,” UOBKH Research said.
Due to Wilmar’s hedging strategy, the group’s plantation segment will likely perform better q-o-q, despite the weaker outlook of the oleochemical and biodiesel sub-segments.
UOBKH Research is of the view that Wilmar’s palm trade will not be impacted by the recent change in Indonesia’s Domestic Market Obligation (DMO) policy, as the group has enough export permits in hand to fulfill its exports requirements.
“Last week, the Indonesian government fine-tuned the DMO again by lowering palm oil DMO to 300,000 tonnes per month from 450,000 tonnes per month, tightened palm oil export ratio to 1:4 from 1:6 previously, and allowed the usage of the suspended palm oil exports permits in stages over the next nine months,” the research house said.
Notably, Wilmar has increased its borrowing in yuan. As such, although the cost of borrowing has increased, the increment is not as large as the hike in the Federal Reserve rate.
“For 2022, the effective interest rate for Wilmar was 2.3%; it expects a marginal increase in 2023,” said UOBKH Research.
UOBKH Research maintains a “buy” call on Wilmar with a target price of S$5.50 (RM18.4).
