SELL
Price S$4.20
Target Price: S$3.20
YE to Dec FY07,FY08F,FY09F,FY10F
FD EPS (US cents) 9.1,17.8,17.6,19.3
FD PE (x) 30.8,15.7,15.9,14.5
On the pre-tax level, Wilmar International Ltd’s 2QFY08 profits were within expectations. But, looking at the trend of CPO prices presently, it appears that we may have to revise Wilmar’s FY08F earnings forecast downwards. We would be revising our numbers pending a teleconference this evening.
Higher commodity prices and sales volume contributed to Wilmar’s 201.5% YoY turnover growth and 355.1% YoY net profit increase in 1HFY08. Net profit of US$674.8mil in 1HFY08 was also boosted by net foreign gains of US$94.1mil in 2QFY08.
Pre-tax profit of the palm and laurics division (mainly refining and processing of palm oil) expanded from US$14.70/tonne in 1HFY07 to US$28.60/tonne in 1HFY08. Sales volume of the division surged 65.3% YoY to 9.3mil tonnes in 1HFY08.
However, if we compare 2QFY08 against 1QFY08, then sales volume of the palm and laurics division remained flat at 4.6mil tonnes. We believe that the lack of growth in demand could be due to the 16% QoQ increase in average selling price in 2QFY08.
Pre-tax profit of the consumer products (cooking oil) division surged from US$7.5mil in 1HFY07 to US$28.2mil in 1HFY08 on the back of increases in sales volume and selling prices. But, on a QoQ basis, sales volume of the consumer products division shrank 20% to 694,000 tonnes in 2QFY08 even though average selling price remained relatively stagnant.
The only QoQ improvement in sales volume came from the oilseeds and grains division (mainly soybean crushing and refining). Sales volume climbed 14.3% QoQ to 3.3mil tonnes in 2QFY08 due to positive demand from the animal feed industry in China.
We maintain a SELL on Wilmar as CPO prices are expected to remain under pressure. Supply is envisaged to outstrip demand while softening crude oil prices is anticipated to drag vegetable oil prices.
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