R e g i o n a l
M o r n i n g
N o t e s
Monday, 11 August 2014
COMPANY UPDATE
HOLD (Maintained)
Wilmar International (WIL SP) Management Expects Strong Recovery In 2H14 Wilmar’s management is very confident about delivering much better 2H14 results, driven by a higher volume growth and margin recovery. Soybean crushing and palm refining margins should improve in 2H14. Maintain HOLD. Target price: S$3.55. Entry price: S$3.10. WHAT’S NEW
A much better 2H14 was the key message from management during the briefing. Management is very confident of delivering much better 2H14 results, driven by seasonally stronger volume and recovering margins for crushing and refining. SEASONALITY: Stronger seasonal volume growth to come from sugar, plantations and consumer divisions.
Sugar. The sugar cane crushing volume will pick up as the harvesting progress was earlier disrupted by heavy rain. Although the sugar cane harvesting progress is slower, Wilmar is on track to see higher mill volume for 2014. We are expecting milling volume grow 10% yoy in 2014 vs 11.6% yoy in 2013.
Consumer pack. 2H is usually the stronger half of the year due to festive demand (MidAutumn Festival, Golden Week). Based on past sales record, 2H sales volume made up 54-55% of full-year sales volume.
Plantation. Production in 2H14 will be stronger due to seasonal factors. Management is guiding for more than 20% FFB production growth in 2014 (vs our expectation of 13%), largely due to a lower base (production fell in 2013). RECOVERY: Largely referring to crushing and palm refinery margins,
Oilseeds & grains. Soybean crushing should be better as lesser soybeans are being imported by financial traders as banks tighten trade financing. Less supply distortion while demand for animal feed is picking up again will lead to better crushing margins. Management is confident of delivering much better results for this division in 2H14.
Palm & lauric. Improvement in refining margins to be driven by more availability of CPO supply as production enters the peak season. The shortage of CPO supply in 2Q14 despite higher production from upstream players was due to competition from enlarged refining capacities and producers holding back their selling in hopes of better offers from refiners.
S$3.21 S$3.55 +10.6%
COMPANY DESCRIPTION Agribusiness group - oil palm cultivation, oilseeds crushing, palm & lauric refining, consumer pack edible oil processing and merchandising and sugar milling & refining.
STOCK DATA GICS sector Consumer Staples WIL SP Bloomberg ticker: Shares issued (m): 6,399.1 20,541.0 Market cap (S$m): Market cap (US$m): 16,406.6 3-mth avg daily t'over (US$m): 15.5 Price Performance (%) 52-week high/low
1mth
S$3.62/S$3.05
3mth
6mth
1yr
YTD
(3.9)
(0.6)
1.6
(6.1)
(0.3)
Major Shareholders
%
Archer Daniels Midland
18.4
Kuok Brothers
16.4
Kuok Khoon Hong
11.9
FY14 NAV/Share (US$)
2.48
FY14 Net Debt/Share (US$)
2.57
PRICE CHART WILMAR INTERNATIONAL LTD
(lcy) WILMAR INTERNATIONAL LTD/FSSTI INDEX
4.00
2012 45,463 2,252 1,709 1,255 1,167 18.2 14.1 1.1 15.0 2.0 2.8 95.4 12.7 9.1 -
2013 44,085 2,299 1,690 1,319 1,303 20.4 12.6 1.1 14.7 3.1 3.0 96.4 125.0 9.0 -
2014F 59,147 2,219 1,570 1,224 1,224 19.1 13.4 1.0 15.2 2.8 2.1 103.6 87.2 7.9 1,236 0.99
2015F 65,688 2,564 1,892 1,450 1,450 22.7 11.3 1.0 13.2 3.3 2.2 94.3 40.7 8.9 1,441 1.01
2016F 72,375 2,915 2,254 1,610 1,610 25.2 10.2 0.9 11.6 3.7 2.2 85.6 13.9 9.3 1,583 1.02
(%)
130
3.80 120 3.60 3.40
KEY FINANCIALS Year to 31 Dec (US$m) Net turnover EBITDA Operating profit Net profit (rep./act.) Net profit (adj.) EPS (cent) PE (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Net margin (%) Net debt/(cash) to equity (%) Interest cover (x) ROE (%) Consensus net profit UOBKH/Consensus (x)
Share Price Target Price Upside
110
3.20 100 3.00 90
2.80 40 30
Volume (m)
20 10 0
Aug 13
Oct 13
Dec 13
Feb 14
Apr 14
Jun 14
Aug 14
Source: Bloomberg
ANALYST Singapore Research Team +65 6535 6868
[email protected]
Source: Wilmar, Bloomberg, UOB Kay Hian
Refer to last page for important disclosures.
27 1
R e g i o n a l
M o r n i n g
N o t e s
STOCK IMPACT
Monday, 11 August 2014
1H14 PBT BREAKDOWN US$m Total PBT
438
yoy % chg (37.4)
Palm & Laurics
262
(40.9)
59.8
Oilseeds & Grains
(53)
n.m.
n.m.
Consumer Products
108
25.4
24.8
Plantation & Palm Oil Mills Sugar Milling
218
74.3
49.7
(147)
n.m.
n.m.
69
8.7
15.9
Biodiesel in Indonesia is moving but at a slower pace. For biodiesel supply in Indonesia, Wilmar is awarded a contract of about 1.1m tonnes for 2014 and so far the take-up is 80-90%. Management said the results for the third tender are likely to be announced this week. Pricing should be much better at MOPS+3.00% vs the previous two tenders’ due to more difficult delivery locations. Management remains optimistic that biodiesel usage in Indonesia in 2014 will be higher than in 2013 (0.8m-0.9m tonnes) and 2015 will be a better year with more infrastructure hurdles resolved. Besides Indonesia, Wilmar also sells biodiesel to the US, China and Africa. Its 100,000mt plant in Johor, Malaysia, is almost fully utilised for domestic B5 blend and exports.
Update on Goodman Fielders. The joint offer with First Pacific to Goodman Fielder (GFF) is likely to be completed by end-14 and this should boost its consumer pack contributions. The main synergies from Wilmar and First Pacific are: a) Wilmar’s strong presence in the soft commodities market should reduce the cost of sourcing for raw materials, such as flour and sugar, and b) expanding GFF’s strong consumer branding products more effectively into Asia, leveraging on Wilmar’s and First Pacific’s strong distribution networks. Consumer products contributed 12.4% of Wilmar’s 2013 pre-tax profit, up from just 9% in 2012. The bulk of the expansion for consumer products is in Indonesia and Vietnam. EARNINGS REVISION/RISK
Trims contribution from palm & laurics. We reduce our refining margins and volume assumptions again to factor in the greate- than-expected squeeze. Wilmar is likely to refine less as the margins are not great.
Raise FFB production growth. We raise our production growth estimates for upstream
Sugar Merchandising & Processing
% of total
Source: UOB Kay Hian
CHANGE IN MARGIN ASSUMPTIONS (US$/tonne)
2014F
2015F
2016F
Palm & Lauric
22.5
20.0
22.0
Oilseeds & Grains
5.0
6.0
8.0
Consumer Pack
35.0
35.0
35.0
Sugar
16.5
16.3
16.3
Palm & Lauric
28.0
25.0
28.0
Oilseeds & Grains
5.0
8.0
10.0
Consumer Pack
35.0
35.0
35.0
Sugar
16.8
19.8
19.9
Revised
Previous
Source: UOB Kay Hian
operations from 13% to 25% to take into consideration management’s revised guidance.
No much change to our earnings estimates after the above adjustments. We are expecting net profit of US$1.22b, US$1.45b and US$1.61b for 2014-16 respectively. VALUATION/RECOMMENDATION
Maintain HOLD and target price of S$3.55, based on sum-of-the-parts method, implying a blended 14.5x 2014F PE. Entry price is S$3.10. SHARE PRICE CATALYST
Sustainable earnings stability will rebuild investors’ confidence in Wilmar and they will
SUM-OF-THE -PARTS VALUATION Division Palm and laurics Oilseeds and grains
PE (x) 15 15
Consumer products
15
Plantation and Palm Oil Mills Sugar
18
Remarks Plantation multiple 10% premium to agrirelated processors 10% discount to China’s consumer peers Plantation multiple
15
Source: UOB Kay Hian
then invest for its long-term growth.
A strong turning point in the Chinese soybean crushing market brought about by increased utilisation¸ which will deliver sustainable margins.
Weather disruption affecting the global oilseed, palm oil and sugar supplies, leading to stronger prices.
Refer to last page for important disclosures.
28 2
R e g i o n a l
M o r n i n g
N o t e s
BALANCE SHEET
PROFIT & LOSS Year to 31 Dec (US$m)
2013
2014F
2015F
2016F
44,085
59,147
65,688
72,375
2,299
2,219
2,564
2,915
608
650
672
661
1,690
1,570
1,892
2,254
0
0
0
0
Associate contributions
104
100
120
120
Net interest income/(expense)
(18)
(25)
(63)
(210)
Pre-tax profit
1,775
1,644
1,949
Tax
Net turnover EBITDA Deprec. & amort. EBIT Total other non-operating income
Year to 31 Dec (US$m)
2013
2014F
2015F
Fixed assets
9,337
10,155
10,005
9,833
Other LT assets
9,453
10,070
10,300
10,212
11,735
7,871
7,296
6,695
Cash/ST investment
2016F
Other current assets
16,106
17,904
18,755
20,096
Total assets
46,632
46,000
46,356
46,836
ST debt
19,392
18,835
18,279
17,722
Other current liabilities
3,800
4,155
4,641
5,116
2,164
LT debt
6,804
5,460
4,815
4,171
Other LT liabilities
(385)
(356)
(422)
(469)
Minorities
(72)
(64)
(76)
(85)
Net profit
1,319
1,224
1,450
1,610
Minority interest
Net profit (adj.)
1,303
1,224
1,450
1,610
Total liabilities & equity
2013
2014F
2015F
2016F
CASH FLOW Year to 31 Dec (US$m)
Monday, 11 August 2014
Shareholders' equity
750
751
840
954
15,005
15,853
16,759
17,765
882
946
1,023
1,107
46,632
46,000
46,356
46,836
2013
2014F
2015F
2016F
KEY METRICS Year to 31 Dec (%)
Operating
1,614
(619)
1,440
1,564
Profitability
Pre-tax profit
1,775
1,644
1,949
2,164
EBITDA margin
5.2
3.8
3.9
4.0
Tax
(460)
(356)
(422)
(469)
Pre-tax margin
4.0
2.8
3.0
3.0
608
650
672
661
Net margin
3.0
2.1
2.2
2.2
Working capital changes
(288)
(2,537)
(720)
(753)
ROA
3.0
2.6
3.1
3.5
Other operating cashflows
(23)
(19)
(39)
(39)
ROE
9.0
7.9
8.9
9.3
Investing
(1,507)
(1,235)
(1,266)
(1,182)
Capex (maintenance)
(1,320)
(997)
(997)
(997)
Growth
(310)
(300)
(300)
(200)
Turnover
(3.0)
34.2
11.1
10.2
75
75
75
75
EBITDA
2.1
(3.5)
15.5
13.7
Others
124
62
31
15
Pre-tax profit
7.3
(7.4)
18.5
11.0
Financing
527
813
376
342
(281)
(367)
(305)
(338)
0
0
0
0
2,189
2,500
2,000
2,000
(1,381)
(1,320)
(1,320)
(1,320)
634
(1,041)
549
724
1,529
2,237
1,271
1,896
Deprec. & amort.
Investments Proceeds from sale of assets
Dividend payments Issue of shares Proceeds from borrowings Others/interest paid Net cash inflow (outflow) Beginning cash & cash equivalent Changes due to forex impact Ending cash & cash equivalent
0
0
0
0
2,162
1,197
1,821
2,620
Refer to last page for important disclosures.
Net profit
5.1
(7.2)
18.5
11.0
Net profit (adj.)
11.7
(6.1)
18.5
11.0
EPS
11.7
(6.1)
18.5
11.0
Leverage Debt to total capital Debt to equity Net debt/(cash) to equity Interest cover (x)
62.2
59.1
56.5
53.7
174.6
153.3
137.8
123.2
96.4
103.6
94.3
85.6
125.0
87.2
40.7
13.9
29 3
R e g i o n a l
M o r n i n g
N o t e s
Monday, 11 August 2014
Disclosures/Disclaimers This report is prepared and/or distributed by UOB Kay Hian Pte Ltd (“UOBKH”), which is a holder of a capital markets services licence and an exempt financial adviser in Singapore. This report is provided for information only and is not an offer or a solicitation to deal in securities or to enter into any legal relations, nor an advice or a recommendation with respect to such securities. This report is prepared for general circulation. It does not have regard to the specific investment objectives, financial situation and the particular needs of any recipient hereof. You should independently evaluate particular investments and consult an independent financial adviser before dealing in any securities mentioned in this report. This report is confidential. This report may not be published, circulated, reproduced or distributed in whole or in part by any recipient of this report to any other person without the prior written consent of UOBKH. This report is not intended for distribution, publication to or use by any person in any jurisdiction outside Singapore or any other jurisdiction as UOBKH may determine in its absolute discretion, where the distribution, publication or use of this report would be contrary to applicable law or would subject UOBKH and its connected persons (as defined in the Financial Advisers Act, Chapter 110 of Singapore) to any registration, licensing or other requirements within such jurisdiction. The information or views in the report (“Information”) has been obtained or derived from sources believed by UOBKH to be reliable. However, UOBKH makes no representation as to the accuracy or completeness of such sources or the Information and UOBKH accepts no liability whatsoever for any loss or damage arising from the use of or reliance on the Information. UOBKH and its connected persons may have issued other reports expressing views different from the Information and all views expressed in all reports of UOBKH and its connected persons are subject to change without notice. UOBKH reserves the right to act upon or use the Information at any time, including before its publication herein. Except as otherwise indicated below, (1) UOBKH, its connected persons and its officers, employees and representatives may, to the extent permitted by law, transact with, perform or provide broking, underwriting, corporate finance-related or other services for or solicit business from, the subject corporation(s) referred to in this report; (2) UOBKH, its connected persons and its officers, employees and representatives may also, to the extent permitted by law, transact with, perform or provide broking or other services for or solicit business from, other persons in respect of dealings in the securities referred to in this report or other investments related thereto; (3) the officers, employees and representatives of UOBKH may also serve on the board of directors or in trustee positions with the subject corporation(s) referred to in this report. (All of the foregoing is hereafter referred to as the “Subject Business”); and (4) UOBKH may otherwise have an interest (including a proprietary interest) in the subject corporation(s) referred to in this report. As of the date of this report, no analyst responsible for any of the content in this report has any proprietary position or material interest in the securities of the corporation(s) which are referred to in the content they respectively author or are otherwise responsible for. Each research analyst of UOBKH who produced this report hereby certifies that (1) the views expressed in this report in any event accurately reflect his/her personal views about all of the subject corporation(s) and securities in this report; (2) the report was produced independently by him/her; (3) he/she does not carry out, whether for himself/herself or on behalf of UOBKH or any other person, any of the Subject Business involving any of the subject corporation(s) or securities referred to in this report; and (4) he/she has not received and will not receive any compensation that is directly or indirectly related or linked to the recommendations or views expressed in this report or to any sales, trading, dealing or corporate finance advisory services or transaction in respect of the securities in this report. However, the compensation received by each such research analyst is based upon various factors, including UOBKH’s total revenues, a portion of which are generated from UOBKH’s business of dealing in securities. IMPORTANT DISCLOSURES FOR INCLUDED RESEARCH ANALYSES OR REPORTS OF FOREIGN RESEARCH HOUSES Where the report is distributed in Singapore and contains research analyses or reports from a foreign research house, please note: (i) recipients of the analyses or reports are to contact UOBKH (and not the relevant foreign research house) in Singapore in respect of any matters arising from, or in connection with, the analysis or report; and (ii) to the extent that the analyses or reports are delivered to and intended to be received by any person in Singapore who is not an accredited investor, expert investor or institutional investor, UOBKH accepts legal responsibility for the contents of the analyses or reports IMPORTANT DISCLOSURES FOR U.S. PERSONS This research report was prepared by UOBKH, a company authorized, as noted above, to engage in securities activities in Singapore. UOBKH is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution by UOBKH (whether directly or through its US registered broker dealer affiliate named below) to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). All US persons that
Refer to last page for important disclosures.
30 4
R e g i o n a l
M o r n i n g
N o t e s
Monday, 11 August 2014
receive this document by way of distribution from or which they regard as being from UOBKH by their acceptance thereof represent and agree that they are a major institutional investor and understand the risks involved in executing transactions in securities. Any U.S. recipient of this research report wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this research report should do so only through UOB Kay Hian (U.S.) Inc (“UOBKHUS”), a registered brokerdealer in the United States. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through UOBKH. UOBKHUS accepts responsibility for the contents of this research report, subject to the terms set out below, to the extent that it is delivered to and intended to be received by a U.S. person other than a major U.S. institutional investor. The analyst whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry Regulatory Authority (“FINRA”) and may not be an associated person of UOBKHUS and, therefore, may not be subject to applicable restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research analyst account. Analyst Certification/Regulation AC As noted above, each research analyst of UOBKH who produced this report hereby certifies that (1) the views expressed in this report accurately reflect his/her personal views about all of the subject corporation(s) and securities in this report; (2) the report was produced independently by him/her; (3) he/she does not carry out, whether for himself/herself or on behalf of UOBKH or any other person, any of the Subject Business involving any of the subject corporation(s) or securities referred to in this report; and (4) he/she has not received and will not receive any compensation that is directly or indirectly related or linked to the recommendations or views expressed in this report or to any sales, trading, dealing or corporate finance advisory services or transaction in respect of the securities in this report. However, the compensation received by each such research analyst is based upon various factors, including UOBKH’s total revenues, a portion of which are generated from UOBKH’s business of dealing in securities.
Copyright 2014, UOB Kay Hian Pte Ltd. All rights reserved. http://research.uobkayhian.com MCI (P) 116/03/2014 RCB Regn. No. 198700235E
Refer to last page for important disclosures.
31 5
