Wilmar International

March 2009


It is surprising how different a company can look when you listen to different people.

Wilmar's Q4 2008 either showed its earnings resilience, or exposed the weakness in its oilseeds division, depending on whether you read the CIMB-GK or DBS Vickers report.

Wilmar reported a 10% drop in turnover to US$5.83billion for Q4 2008. Net profit rose 60% to US$373.6 mln. Core net profit was US$364.4million, 63% higher than US$223m in Q4 2007. The company gained US$1.9b in cash from operations, more than three times higher than the US$608.8m it gained the previous year. It declared a final dividend of S$0.045. With its interim dividend of S$0.028, its total dividend for FY2008 is S$0.073.

DBS Vickers
DBS Vickers thinks Wilmar's stock is FULLY VALUED with a target price of S$2.50.

It does not like Wilmar reporting a Q4 net profit decrease of US$373.6m quarter-on-quarter, and is of the view that the palm oil company’s oilseeds division will be weak in the near term due to softening meal demand.

The broker also does not like the weaker margins in Q4 2008. Wilmar's Q4 oilseeds and grains profit before tax per metric ton (MT) dropped to US$16/MT from US$52/MT in the previous quarter. Also, palm and lauric profit before tax per metric ton was booked at US$32/MT from US$42/MT in the previous quarter. This was mainly due to the lagging effect of high freight rates and drop in selling prices.

DBS Vickers had downgraded Wilmar from a HOLD to FULLY VALUED in its previous report on February 6. It said Wilmar's biggest risk could come from actions by the Chinese government to support domestic soybean companies by buying the commodity for state reserves. It expected Wilmar's merchandising and processing PBT/MT to drop by 49-55% this year.

CIMB-GK
CIMB-GK has an OUTPERFORM call on Wilmar with a target price of S$3.68.

Unlike DBS Vickers, CIMB-GK said Wilmar's Q4 2008 met its expectations. It prefers to look at the Q4 core profit before tax on a year-on-year basis. From this perspective, Wilmar’s Q4 2008 core profit of US$351.7m was 10% higher than the US$319.8m it recorded in Q4 2007.

CIMBG-GK sees the growth as a sign of Wilmar's earnings resilience compared to pure planters, thanks to its integrated business model. The broker likes Wilmar’s healthy balance sheet and the fact that the planter appears confident of booking good merchandising and processing margins despite lower CPO and soybean prices. CIMB-GK did not address the issue of how the actions of the Chinese government in purchasing soybeans will affect Wilmar.

ABN AMRO
ABN AMRO Securities analyst Nirgunan Tiruchelvam brought yet another viewpoint to Wilmar's prospects when he was interviewed on CNBC on February 3. The analyst recommended a SELL on Wilmar with a target price of S$2.14, before Wilmar announced its latest financial results.

The analyst said at least a quarter of its earnings from the past three quarters have come from trading gains. He thinks that Wilmar’s run of good luck will end sooner or later, and the company needs to focus on its core operations.

He added that Wilmar needs to better its disclosure standards if it wants to incite investor confidence. According to Tiruchelvam, similar companies listed in the US, provide more details in their financial reports.

Analysts surveyed by Reuters have on average an OUTPERFORM call on the stock with a price target of S$3.442.

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