Kuok Khoon Hong, chairman and CEO of Wilmar International, has seen an increase in his stake in the company. On Aug 16, about 3.46 million shares were purchased on the open market at around $3.6 each on behalf of Kuok by three investment companies in which he has deemed interests. On Aug 15, a million shares were bought at $3.64 each and on Aug 14, just over four million shares were bought at around $3.70 each.

 

Following these purchases, Kuok has a total interest of about 834.9 million shares, equivalent to 13.38% of the company.

 

The last time Kuok saw an increase in his stake was on May 31 when the same three investment companies acquired 3 million shares on the open market at an average price of $3.907 each.

 

Kuok&rsquo s latest stake increase comes after Wilmar reported weaker earnings in 1HFY2023 ended June 30, leading to a decline in its share price recently. On Aug 1, Wilmar reported earnings of US$550.9 million ($747.5 million) in 1HFY2023 ended June, down 52.7% y-o-y from US$1.16 billion recorded in 1HFY2022. Revenue in the same period was down 10% y-o-y to US$32.5 billion.

 

The company attributes the weaker numbers to lower selling prices despite moving a higher volume of goods. Despite lower earnings, Wilmar plans to maintain its interim dividend at 6 cents per share.

 

In his earnings commentary, Kuok says that the company has made &ldquo good progress&rdquo on various new businesses like condiments which he expects should become significant contributors in the future. &ldquo Barring unforeseen circumstances, we believe 2H2023 will be better than 1H2022,&rdquo says Kuok.

 

Share buybacks help lift EPS

 

Yangzijiang Financial Holding (YFH) has resumed its share buybacks. This follows the announcement of higher 1HFY2023 ended June earnings compared to 1HFY2022, thanks to a higher fair valuation of its investments.

 

On both Aug 14 and Aug 16, YFH acquired 3 million shares at 36 cents each. This brings the total number of shares bought back under the current mandate to nearly 30.1 million shares.

 

The buybacks were done days after YFH on Aug 12 reported earnings of $162.5 million for 1HFY2023, up 19.2% y-o-y. Total income in the same period was up 14.2% y-o-y to $198.4 million, boosted by a net gain of $34.5 million in fair value of financial assets versus a fair value loss of $19 million in 1HFY2022.

 

In addition to the buybacks, two of the company&rsquo s independent directors added to their respective stakes on Aug 14 as well. Chua Kim Leng bought 100,000 shares, bringing his total to 300,000 shares. Chew Sutat, who already held one million shares, bought 88,000 more. Both paid 36 cents for each share.

 

YFH was spun off Yangzijiang Shipbuilding in a listing of its own in April 2022. Just a month after the listing, YFH announced a $200 million share buyback programme.

 

As a result of the series of buybacks, its share base has been reduced by 6.2% as at June 30. Coupled with higher earnings, this has the effect of increasing its 1HFY2023 earnings per share by 27.2% y-o-y to 4.39 cents. In contrast, EPS for whole of FY2022 was 4.22 cents.

 

As at June 30, YFH&rsquo s net asset value per share was $1.052 versus $1.0495 as at Dec 31, 2022. Accordingly, YFH is trading at a 64.8% discount off its book value as at its Aug 15 close of 37 cents.

 

At the time of its listing, the bulk of YFH&rsquo s assets were in the form of short-term debt investments in China. By listing in Singapore and operating here as well, it wants to build an investment and wealth management platform outside China.

 

YFH&rsquo s executive chairman Ren Yuanlin says the &ldquo robust&rdquo 1HFY2023 performance can be attributed to the &ldquo meaningful headway&rdquo the firm has made in reducing its non-performing loans as well its diversification strategy. &ldquo

 

Our Singapore investments have started to contribute positively to the group&rsquo s bottom line in this financial period and we expect contributions from this segment to continue growing in the foreseeable future,&rdquo he adds.

Kuok Khoon Hong, chairman and CEO of Wilmar International, has seen an increase in his stake in the company. On Aug 16, about 3.46 million shares were purchased on the open market at around $3.6 each on behalf of Kuok by three investment companies in which he has deemed interests. On Aug 15, a million shares were bought at $3.64 each and on Aug 14, just over four million shares were bought at around $3.70 each.

Following these purchases, Kuok has a total interest of about 834.9 million shares, equivalent to 13.38% of the company.
The last time Kuok saw an increase in his stake was on May 31 when the same three investment companies acquired 3 million shares on the open market at an average price of $3.907 each.

Kuok&rsquo s latest stake increase comes after Wilmar reported weaker earnings in 1HFY2023 ended June 30, leading to a decline in its share price recently. On Aug 1, Wilmar reported earnings of US$550.9 million ($747.5 million) in 1HFY2023 ended June, down 52.7% y-o-y from US$1.16 billion recorded in 1HFY2022. Revenue in the same period was down 10% y-o-y to US$32.5 billion.

The company attributes the weaker numbers to lower selling prices despite moving a higher volume of goods. Despite lower earnings, Wilmar plans to maintain its interim dividend at 6 cents per share.

In his earnings commentary, Kuok says that the company has made &ldquo good progress&rdquo on various new businesses like condiments which he expects should become significant contributors in the future. &ldquo Barring unforeseen circumstances, we believe 2H2023 will be better than 1H2022,&rdquo says Kuok.

 

Analysts from OCBC Investment Research (OIR), RHB Bank Singapore, CGS-CIMB Research and Citi Research have all maintained their &ldquo buy&rdquo and &ldquo add&rdquo calls to Wilmar International despite its weak earnings performance of US$550.9 million ($747.81 million) for 1HFY2023, down 52.7% y-o-y.

 

All the brokerage houses are looking forward to a more profitable 2HFY2023 for Wilmar as it continues to benefit from China&rsquo s slower-than-expected recovery.

 

However, they have all trimmed their target prices, reflecting a more conservative outlook on Wilmar. OIR has lowered it from $4.74 to $4.42, RHB has lowered it from $4.65 to $4.25, CGS-CIMB has lowered it from $4.63 to $4.05, and finally Citi has lowered it from $5.35 to $4.38.

 

Wilmar&rsquo s lacklustre performance was mainly due to a 10% decline in revenue as prices of most commodities decreased, causing lower margins across their key segments, as well as a softer consumer demand in China.

 

OIR analysts highlight that segmental performances were weighed down by weaker margins, where Wilmar&rsquo s pre-tax profit (PBT) for food products decreased by 84% y-o-y to US$82.7 million in 1HFY2023.

 

This was largely due to unfavourable sales mix, lower sales volume from consumer products, as more people resumed dining out and weaker consumer demand in China, together with weaker margins from 3.3% in 1HFY2022 to 0.6% in 1HFY2023, as a result of high feedstock costs for the flour business.

 

The analysts note that the higher priced feedstock inventory has been normalised, leading to better margins in July and Aug 2023 for the flour business.

 

Feed and industrial products&rsquo PBT fell 21% y-o-y to US$399 million in 1HFY2023, due to lower margins for the mid and downstream tropical oils operation.

 

This was further dragged by weak crush margin as a result of lower demand from the poultry and hog industries and elevated soybean prices in 2Q2023, although partially offset by stronger sugar merchandising and shipping operations, say the analysts.

Separately, plantation and sugar milling business&rsquo PBT was down 86% y-o-y to US$62.9 million with weaker performance across palm plantation and sugar milling operations due to lower palm oil prices, lower fresh fruit bunch production and weaker volume of sugar sales in 1HFY2023.

 

OIR analysts note that Wilmar&rsquo s management has guided for a better 2HFY2023, on the back of improved margins as soybean crush margin returned to positive in July, with improvements in animal feed demand.

 

&ldquo Following the results, we revise our growth and margin estimates. Correspondingly, our fair value estimate decreases from $4.74 to $4.42,&rdquo they say.

 

Similarly, RHB analysts note that 1HFY2023 core profit was below expectations, at 32%-35% of FY2023, due to lower-than-expected margins for all divisions amidst a slower-than-expected pick up in China&rsquo s demand post uplift of lockdowns.

 

RHB analysts warn that despite inventory normalising in 2H2023, the situation could still be upended by further increases in raw material prices, especially with the ongoing geopolitical conflict.

 

They also cut their margin assumptions for oilseeds and grains, to reflect the 1HFY2023 results, and note that supply risks for plantation and sugar milling divisions remain in the form of El Nino.

 

As a result, RHB analysts have trimmed their FY2023-FY2025 earnings estimates by 3%-28% after reducing their food product, tropical oils, oilseeds and grain margins.

 

However, they expect 2HFY2023 to perform better in terms of margins and average selling prices (ASPs), although they are wary of geopolitical risks.

 

&ldquo Despite the weak results, we believe the stock remains undervalued &ndash trading at 10x FY2024 P/E vs China-listed peers&rsquo 20x-40x, while its combined stake in Yihai-Kerry and Adani Wilmar is almost double that of its own market capitalisation,&rdquo they add.

 

Likewise, Tay Wee Kuang and Lim Siew Khee from CGS-CIMB say that they have reduced their sum-of-the-parts based target price after reducing its FY2023/FY2024/FY2025 earnings per share (EPS) estimates by 28.6%/17.3%/5.0%, as they expect Wilmar to slowly return to pre-Covid-19 profitability.

 

Tay and Lim believe that the weak consumer sentiment in China will not be able to support cost pass-through in the near term, while near-term cost pressures remain as it will take time for higher-priced feedstock such as wheat to be absorbed.

 

Although they think that sales volumes are likely to continue growing, Wilmar&rsquo s FY2023 profitability may continue to be weighed down.

 

Noting a share price weakness in Wilmar&rsquo s listed subsidiaries, Yihai Kerry Arawana and Adani-Wilmar, their target price has been reduced to $4.05.

 

&ldquo We see limited catalysts in the near term due to volatility of raw material costs, as well as overhang from the recent news of Adani looking to sell its 44% stake in Adani-Wilmar,&rdquo they say. &ldquo Nevertheless, we think Wilmar will continue to benefit from the progressive recovery in China&rsquo s economy.&rdquo

 

Finally, Citi analyst Jame Osman says that he continues to view Wilmar as a recessionary and inflationary hedge, and a China reopening play.

 

He looks to a better 2HFY2023 driven by sales volume recovery as he notes that Wilmar&rsquo s management has shared that it has observed an improvement in demand in the market with 1HFY2023 marking a bottom, resulting in an expectation of a better 2HFY2023 h-o-h.

 

He notes that the magnitude of recovery will unsurprisingly be tied to China&rsquo s macro backdrop.

 

However, unlike the few analysts before him, Osman thinks that El Nino weather impact is an upside tail risk for Wilmar, as higher prices will ultimately benefit their upstream and refining margins.

 

Osman cuts his FY2023-FY2024 EPS forecasts by 38%/18%/11%, mainly after tempering his margin assumptions to factor 1HFY2023 trends.

 

His new lowered target price is based on a target multiple of about 12x (about 1 standard deviation (s.d.) below past 10-year mean of about 14x previously, to reflect the near-term uncertainty around consumption recovery.

 

&ldquo Our positive mid- to longer-term structural view of Wilmar and its business model remains intact, considering its positioning as an integrated and diversified food producer in two of the largest consumer growth markets of China and India,&rdquo he says. &ldquo Valuations remain inexpensive, with the stock trading at FY2024 price earnings ratio of 9x > 1 s.d. below the past 10-year mean of 14.2x.&rdquo

 

ALETHEIA Capital has initiated coverage on Wilmar International : F34 -3.94% with a &ldquo sell&rdquo call and a price target of S$2.58, citing &ldquo faltering returns and poor earnings growth&rdquo .

 

As at the time of the report&rsquo s release on Monday (Aug 14), analyst Nirgunan Tiruchelvam noted that this is the first &ldquo sell&rdquo call for Wilmar, alongside 13 &ldquo buy&rdquo calls and two &ldquo hold&rdquo ratings according to Bloomberg.

 

The price target implies 9.9 times the stock&rsquo s EV/Ebitda (enterprise value to earnings before interest, taxes, depreciation and amortisation) multiple based on Alethia&rsquo s FY2024 forecasts.

 

At S$3.81, Tiruchelvam noted that Wilmar is trading at 11.4 times EV/Ebitda, which is slightly higher than the sector median. This premium is unwarranted, in his view.

 

Among the analyst&rsquo s concerns is the agribusiness group&rsquo s highly indebted position as at H1 FY2023, which makes the stock&rsquo s net debt the highest on the Singapore Exchange.

 

This would leave the company vulnerable to potential carry trade and interest rate hikes, said Tiruchelvam.

 

He estimated that the recent spike in interest rates could raise Wilmar&rsquo s net interest expense in FY2023 to US$760 million, compared with US$253 million in FY2021.

 

Although Wilmar&rsquo s management stated that such net debt could be set off against its readily-marketable inventory, Tiruchelvam believed this possibility &ldquo could be challenged in a potential bear market for soft commodities&rdquo .

 

The analyst also highlighted the &ldquo dangerous&rdquo unwinding risk of the US dollar-renminbi carry trade.

 

&ldquo A widening of the US dollar-renminbi carry trade to an interest rate spread of 4 per cent, from 3.3 per cent base case, could cut Wilmar&rsquo s FY2023 net income by 16 per cent. A widening to 4.8 per cent could shave off a third of its earnings.&rdquo

 

Lastly, Tiruchelvam said how the stock&rsquo s returns have lagged behind its average capital cost for most of the past five years due to &ldquo excessive investment&rdquo in the refining business.

 

He foresees this trend continuing into FY2023 to FY2025 amid weak refining and processing margins, as well as higher capital expenditure for its processing assets.

 

Wilmar chief executive Kuok Khoon Hong says the company&rsquo s first-half performance had been affected by a slowdown in most markets, except India, in the second quarter of the year.

WILMAR International&rsquo s net profit for the half year ended June 2023 fell 52.7 per cent to US$551 million, from US$1.2 billion last year.

 

This was due to lower contributions from food products and feed and industrial products, despite higher sales volume.

 

However, this was partially offset by improved contributions from its sugar merchandising and shipping divisions, as well as &ldquo strong performances&rdquo from its European associates and joint ventures, said the company in an earnings announcement on Friday (Aug 11).

 

Revenue for the agribusiness group slipped 10 per cent, falling to US$32.5 billion, from US$36.1 billion in H1 last year.

 

Earnings per share saw a 52.4 per cent contraction, down to 8.8 US cents, from 18.5 US cents.

 

The board has approved an interim dividend of S$0.06 per share, unchanged from last year. This will be paid out on Aug 30, after books closure on Aug 23.

 

Wilmar chief executive Kuok Khoon Hong said the company&rsquo s first-half performance had been affected by a slowdown in most markets, except India, in the second quarter of the year. Business performance was further impacted by lower palm oil and fertiliser prices, as well as lower processing margins for the company&rsquo s mid and downstream operations, he added.

 

Barring &ldquo unforeseen circumstances&rdquo , the group expects its H2 performance to be better, buoyed by its new businesses in condiments, food park and central kitchen projects, which are expected to become &ldquo significant contributors&rdquo to its future operations.

 

AGRIBUSINESS group Wilmar International : F34 +0.26% said on Sunday (Jul 30) that it has entered into a deal with several Moroccan investors to dispose of its entire 30.1 per cent equity stake in Casablanca Stock Exchange-listed Cosumar.

 

The total cash consideration for the sale is about 5.96 billion Moroccan dirhams (about S$812.3 million).

 

The carrying value of the investment in Cosumar in Wilmar&rsquo s books was US$336.2 million as at Dec 31, 2022.

 

Cosumar&rsquo s main business is the production of sugar through the processing of sugar cane and sugar beet in Morocco as well as the refining of imported raw sugar and the marketing and distribution of these products.

 

&ldquo The completion of the Cosumar transaction, targeted to happen at the latest in the fourth quarter of 2023, is subject to certain conditions, including regulatory approvals,&rdquo Wilmar said.

 

As part of the agreement, Wilmar will make two acquisitions from Cosumar.

 

Firstly, it will buy Cosumar&rsquo s entire 45 per cent equity interest in Morocco-incorporated Wilmaco for a total cash consideration of 85.1 million Moroccan dirhams. This will result in Wilmaco becoming a wholly-owned subsidiary of Wilmar.

 

In the second acquisition, Wilmar will buy Cosumar&rsquo s entire 43.3 per cent equity interest in Durrah Advanced Development Company, which is incorporated in Saudi Arabia, for a total cash consideration of 242.8 million Saudi riyals (about S$86.2 million). The deal will boost Wilmar&rsquo s stake in Durrah from 5 per cent to 48.3 per cent. The balance 51.7 per cent is held by local Saudi investors.

 

Wilmaco&rsquo s main business is the production, development, processing, import, export and marketing of vegetable fats and their by‐ products. The construction of the Wilmaco speciality fats facility is expected to be completed in Q4 2023.

 

Durrah&rsquo s main business is the refining of imported raw sugar, and the marketing and distribution of these products.

 

These two acquisitions are subject to terms to be finalised by September 2023 and to certain conditions, including approval from Cosumar&rsquo s board. &ldquo When completed, these transactions will not have a significant financial impact on Wilmar,&rdquo the Singapore Exchange mainboard-listed group said.

 

&ldquo As there is no certainty that the above mentioned transactions will be completed, investors are advised to trade with caution when dealing in the shares of Wilmar,&rdquo it added.