Both research houses have lowered their near-term earnings forecasts to account for lower contributions from China. 

 

BOTH DBS Group Research and Maybank Securities have lowered their target prices for Wilmar International : F34 +0.27%, due to expectations of a slowdown in demand from China as the country&rsquo s growth outlook weakens.

 

DBS on Monday (Jul 10) trimmed its target price to S$5.30 from S$6.67, while retaining its &ldquo buy&rdquo call on the stock. Maybank, which has an unchanged &ldquo hold&rdquo call on Wilmar, lowered its price target to S$3.99 from S$4.27 in a report on Jul 7.

 

Both research houses have lowered their near-term earnings forecasts to account for lower contributions from China, which consist mostly of the group&rsquo s tropical oil refining business.

 

&ldquo Despite the short-term earnings weakness, Wilmar&rsquo s integrated food products platform has room to further expand via its downstream division spanning consumer products to central kitchen,&rdquo said DBS analyst William Simadiputra.

 

Simadiputra said he continues to like Wilmar for its increasing focus on the downstream business, which he believes will &ldquo create a more stable earnings platform ahead&rdquo .

 

DBS is projecting Wilmar&rsquo s earnings to recover to some US$2 billion in FY2024, up 23 per cent year on year, as the group&rsquo s tropical oil refining margins are expected to improve.

 

It also expects the group to capitalise on the recovering edible oil market next year, driven by demand recovery in China, as well as supply disruption from El Nino.

 

DBS&rsquo revised target price implies a 12 times price-to-earnings (P/E) multiple based on FY2024 estimates, which factors in the group&rsquo s earnings prospects.

 

In the analyst&rsquo s view, any temporary earnings weakness in FY2023 has already been priced in.

 

&ldquo We believe Wilmar&rsquo s current share price, which is close to the pandemic level, doesn&rsquo t value Wilmar&rsquo s developing integrated food products platform, especially its downstream branded products and central kitchen expansion.&rdquo

 

Maybank said it expects Wilmar&rsquo s net profit after tax (NPAT) to &ldquo decelerate further&rdquo when the group reports its Q2 FY2023 results in August.

 

This comes on the back of soft services demand in China, and falling palm oil prices which may affect margins, said Maybank analyst Thilan Wickramasinghe.

 

Such factors should limit Wilmar&rsquo s room for positive earnings momentum in FY2023, he said.

 

Maybank&rsquo s lower target price accounts for higher borrowing costs, as well as a target P/E ratio of 26 times.

 

While Wickramasinghe noted that the stock trades at a forward P/E discount of 78 per cent to its listed Chinese subsidiary Yihai Kerry, and a discount of 83 per cent to its India listing through Adani Wilmar, the analyst said he does not see a catalyst for this gap closing in the medium term.

 

This is because investors in China and India are able to participate directly in their respective countries&rsquo growth through Wilmar&rsquo s listed subsidiaries, he said.

 

The analyst nonetheless raised the group&rsquo s NPAT estimates for FY2023-2024 by 10 per cent to 13 per cent to factor in higher margins in the feed and industrial segment, as well as higher volumes in the plantations and sugar segments due to a seasonally stronger H2 FY2023.

On May 31, Wilmar International : F34 -0.77% chairman and CEO Kuok Khoon Hong increased his deemed interest in the agribusiness. Longhlin Asia and Hong Lee Holdings both acquired 1.5 million shares of Wilmar at an average price of S$3.907 per share.

 

The consideration of the acquisitions totalled S$11,721,000, increasing Kuok&rsquo s total interest in the company from 13.19 per cent to 13.24. His preceding acquisition was on May 3, with a total of 311,000 shares acquired at S$3.85 per share.

 

Kuok has extensive experience in the agribusiness industry and has been involved in the grains, edible oils and oilseeds businesses since 1973.

 

Back in FY22, Wilmar conducted S$278 million in buybacks at an average price of S$4.11.

 

Responding to a question from the Securities Investors Association (Singapore) or Sias, prior to the Apr 20 annual general meeting (AGM), Wilmar International said that the buybacks were conducted because the share price was grossly undervalued. Management reasoned that as at Dec 31, 2022, the market capitalisation of the share of its Chinese subsidiary, Yihai Kerry Arawana, was S$40.38 billion, and that of its Indian associate, Adani Wilmar, was S$5.65 billion, which translated to a combined value of S$7.37 per share.

 

Wilmar also provided an update on the central kitchen (CK) business noting that the CK Food Park project is an important new extension of the group&rsquo s value chain and complements it existing businesses.

 

It added that it will build multiple integrated food park complexes and site most of them in the integrated manufacturing plants throughout China to address the growing need for efficient and quality food production.

 

The first CK Food Park project in Hangzhou (Zhejiang province) commenced operations in April 2022, followed by three more in Zhoukou (Henan province), Chongqing, and Xingping (Shaanxi province) respectively.

 

Another six projects are under construction in Langfang (Hebei province), Shenyang (Liaoning province), Kunshan (Jiangsu province), Yanzhou (Shandong province), Guangzhou (Guangdong province) and Huai&rsquo an (Jiangsu province). The Langfang and Shenyang projects are expected to be operational this year.

 

Wilmar maintained that the Food Parks generate multiple sources of revenue, including revenue from the group&rsquo s own central kitchen, rental income from tenants (that is, other central kitchen operators, food manufacturers, ingredient suppliers, service providers), sale of its products to Food Park tenants (for example, cooking oil, rice, flour, noodles, condiments, detergents) and provision of services (for example, warehousing, distribution).

 

FOR the trading sessions that spanned May 26 to Jun 1, the Straits Times Index (STI) slipped 1.3 per cent while the Hang Seng Index fell 2.8 per cent and the FTSE Bursa Malaysia KLCI declined 1.4 per cent.

 

Institutions were net sellers of Singapore stocks over the five sessions with S$93 million of net outflow following the preceding five sessions of S$4 million of net inflow.

 

DBS : D05 +0.99%, CapitaLand Investment : 9CI 0%, Sats : S58 -3.49%, Singtel : Z74 +0.4%, and Yangzijiang Shipbuilding (Holdings) : BS6 -0.81% led the net institutional outflow for the five sessions.

 

Meanwhile, OCBC : O39 -0.33%, Sembcorp Industries : U96 +3.18%, UOB : U11 -0.39%, Mapletree Logistics Trust : M44U +0.6%, and City Developments : C09 +0.44% led the institutional inflow over the five sessions.

 

Share buybacks

There were 22 companies conducting share buybacks over the five trading sessions through to Jun 1 with a total consideration of S$40.1 million, following the S$22.1 million filed for the preceding five sessions.

 

Director and substantial shareholder transactions

The five trading sessions saw close to 100 changes to director interests and substantial shareholdings filed for more than 40 primary-listed stocks.

 

This included 19 company director acquisitions with three disposals filed, while substantial shareholders filed five acquisitions and four disposals.

Wilmar International chairman and CEO Kuok Khoon Hong increased his deemed interest in the company following the April 28 release of its first-quarter results for the year ending Dec 31, 2023. On May 3, two companies that Kuok is deemed to be interested in acquired a total of 311,000 shares in Wilmar International at S$3.85 per share. The consideration of the acquisitions totalled S$1,197,350. Kuok maintains a 13.19 per cent total interest in the company.

 

The group reported Q1 FY23 net profit of US$391.4 million and core net profit of US$381.9 million, with stronger sales volume recorded in both food products and feed and industrial products segments. Excluding the gain on dilution of interest in Adani Wilmar of US$175.6 million recognised in Q1 FY22, the group reported year-on-year growth in net profit of 10.3 per cent, while core net profit grew 16.5 per cent year on year in Q1 FY23.

 

The writer is the market strategist at Singapore Exchange (SGX). To read SGX&rsquo s market research reports, visit sgx.com/research.

FOR the trading sessions that spanned Apr 28 to May 4, the Straits Times Index (STI) declined 0.4 per cent while the Hang Seng Index slipped 0.1 per cent and the FTSE Bursa Malaysia KLCI gained 0.3 per cent.

 

Institutions were net sellers of Singapore stocks over the four sessions with S$50 million of net outflow. DBS : D05 -0.72%, UOB : U11 -0.21%, Thai Beverage : Y92 0%, OCBC : O39 -0.16% and Keppel Reit : K71U +0.57% led the net institutional outflow for the four sessions.

 

Meanwhile, Singtel : Z74 0%, Sembcorp Industries : U96 -0.43%, Seatrium : S51 +0.78%, Keppel Corporation : BN4 -0.77% and Singapore Airlines : C6L 0% led the institutional inflow over the four sessions.

 

Share buybacks

There were 12 companies conducting share buybacks over the four trading sessions through to May 4, with a total consideration of S$4.8 million, following the S$12.3 million filed for the preceding five sessions.

 

Director and substantial shareholder transactions

The four trading sessions saw 100 changes to director interests and substantial shareholdings filed for close to 40 primary-listed stocks. This included 17 company director acquisitions with four disposals filed, while substantial shareholders filed 11 acquisitions and 11 disposals.

 

Acquisitions saw filings for directors of A-Sonic Aerospace : BTJ +1.98%, China Sunsine Chemical Holdings : QES -1.18%, Darco Water Technologies : BLR 0%, Heeton Holdings : 5DP 0%, Tai Sin Electric : 500 -1.25%, Trans-China Automotive Holdings : VI2 0% and YKGI : YK9 0%, in addition to Oxley Holdings : 5UX +1.47% and Wilmar International : F34 +0.26%.

RHB Bank Singapore has maintained its " buy" call on Wilmar International as it believes the stock remains " undervalued" .

 

However, along with a slightly reduced earnings assumption, the target price has been trimmed from $4.65 to $4.40.

 

The agri-food giant' s recent 1QFY2023 earnings were " slightly below" RHB' s expectations, at just 20% of its earnings projected for the current FY2023, because of lower palm oil prices and processing margins.

 

A slower-than-expected pickup in demand in China, despite the lockdowns having ended, contributed to the missed expectations too.

 

&ldquo In addition, with commodity prices continuing to trend southwards, customers are adopting a wait-and-see attitude before restocking while expecting average selling prices to come off. We have reduced our medium pack and bulk volume assumptions accordingly,&rdquo says RHB.

 

RHB expects the current 2QFY2023 to be better in terms of sales volumes for food products and crushing, while margins could strengthen in the second half of the year once Wilmar runs down its high-priced inventory.

 

RHB points out that the combined value of Wilmar&rsquo s China-listed subsidiary Yihai-Kerry, plus India-based joint venture, Adani Wilmar, is almost double that of Wilmar&rsquo s own market cap.

 

Wilmar trades at just 10.5x FY2023 earnings, versus the 20-40x that its China-listed peers can fetch.

 

CGS-CIMB analysts, in their May 3 note, have similarly cut their target price from $4.82 to $4.63.

 

CGS-CIMB' s Tay Wee Kuang and Lim Siew Khee have cut their earnings estimate for the current and coming FY2023 and FY2024 by 9.7% and 5.1% respectively, citing margin pressure on plantations and the feed and industrial segment.

 

In addition, they have also taken into account the slower-than-expected recovery in China&rsquo s economy following reopening as reflected in the lower share price of its subsidiary Yihai Kerry

 

Their revised target price implies FY2024 earnings estimate of 11.7x slightly lower than its 10-year historical average of 12.2x.

 

A re-rating catalyst is a recovery in key commodity prices downside risks include an economic downturn and persistently weak refining and crushing margins, note Tay and Lim.

 

UOB Kay Hian offers a somewhat take from the other brokerages.

 

It has maintained its &ldquo buy&rdquo call and $5.50 target price on the stock, after leaving the 1QFY2023 result briefing with a few &ldquo positive surprises&rdquo with the management &ldquo more upbeat than our expectation&rdquo .

 

Citing the guidance provided by Wilmar&rsquo s management, UOB Kay Hian believes that the current 2QFY2023 may turn out to be another &ldquo exceptional quarter&rdquo where core earnings will at least match the US$382 million reported for the preceding 1QFY2023.

 

UOB Kay Hian, in its May 3 note, has kept its earnings forecast for the current FY2023 to FY2025 at US$1.9 billion, US$2.2 billion and US$2.4 billion respectively.

 

The $5.50 target price is derived from a sum of the parts valuation methodology that is pegged to 17x FY2023 earnings for Wilmar&rsquo s China operations, and a blended 11x multiple for the non-China businesses.

 

&ldquo Despite lower yoy earnings expectations for 2023, we still recommend &lsquo buy&rsquo for Wilmar as the strong recovery of its China operations will compensate the weakness in tropical oils,&rdquo says UOB Kay Hian.

 

The Group reported net profit of US$391.4 million and core net profit of US$381.9 million for the quarter, with stronger sales volume recorded in both Food Products and Feed & Industrial Products segments. Excluding the gain on dilution of interest in Adani Wilmar Limited of US$175.6 million recognised in 1Q2022, the Group reported a growth in net profit of 10.3%, while core net profit grew by 16.5% during the quarter.

 

Despite the challenging operating conditions, the Group managed to deliver a satisfactory set of results for 1Q2023. Higher volume of sales was achieved across all businesses. Sugar milling and merchandising did well with higher sugar prices. Oilseed crushing did better due to higher volume and good coverage of raw materials. Food Products segment saw an overall increase in volume of sales, largely due to higher medium pack and bulk products sales, particularly in China. Plantation profit was reasonable even though palm oil prices came down significantly from the peak. Shipping performed well but palm oil refining margin was poor.

 

In addition, the Group enjoyed higher share of profits from its investments in associates and joint ventures during the quarter, especially from India and Europe, as well as non-operating gains from its investment securities and lower effective tax rate.

Cash Flow & Balance Sheet

 

The stable performance for the quarter led the Group to generate higher operating cash flows before working capital changes of US$756.1 million. With the decline in commodity prices and seasonal reduction in overall inventory balance during the quarter, working capital requirements for the Group decreased accordingly, leading to lower net debt of US$17.27 billion as of 31 March 2023 (31 December 2022: US$18.75 billion). Consequently, net gearing ratio for the Group improved to 0.84x as of March 2023 (FY2022: 0.94x). This led to the Group generating strong cash inflow from operating activities of US$2.17 billion in 1Q2023.

 

At the end of the reporting period, the Group had unutilised banking facilities amounting to US$26.32 billion.

 

Outlook

 

Results for the quarter ended 31 March 2023 were satisfactory, despite the uncertain macro-economic outlook at the start of the year. With our diversified and integrated business strategies, we are cautiously optimistic that performance for the rest of the year will remain satisfactory.

On Mar 10, Wilmar International : F34 +2.21% chairman and chief executive officer (CEO) Kuok Khoon Hong increased his deemed interest in the company. HPRY Holdings, in which Kuok has a deemed interest, acquired one million shares at an average price of S$3.93 per share.

 

Kuok maintains a 13.19 per cent total interest in Wilmar International and is overall in charge of the management of the group with a particular focus on new business developments.

 

He has gradually increased his total interest in Wilmar International from 12.94 per cent in October 2022.

 

The group operates an integrated agribusiness model that encompasses the entire value chain of the agricultural commodity business, from cultivation and milling of palm oil and sugarcane, to processing, branding, and distribution of a wide range of edible food products in consumer, medium and bulk packaging, animal feeds and industrial agri-products.

 

Kuok in the market again

 

Kuok Khoon Hong, Wilmar International&rsquo s CEO, continued increasing his stake in the company. On March 10, via an entity called HPRY Holdings, Kuok acquired one million shares at $3.93 each on the open market. This brings his total interest in Wilmar to over 823.1 million shares, equivalent to 13.19%, up from 13.17% previously.

 

A day earlier, on March 9, Kuok had also acquired one million shares at $3.94 each.

 

Earlier, Kuok had also made acquisitions on several days in late February, after Wilmar reported its most recent earnings.

 

In FY2022 ended Dec 31, 2022, Wilmar reported record earnings of US$2.4 billion, 27.1% higher than FY2021. Revenue in the same period was US$73.4 billion, up 11.6% from FY2021. The company plans to pay a final dividend of 11 cents, which will bring its total FY2022 payout to an all-time high of 17 cents.

 

In his earnings commentary, Kuok calls FY2022 an &ldquo exceptional&rdquo year where the company enjoyed higher prices of the commodities it sells. While he warns that the current FY2023 will be &ldquo challenging&rdquo as both plantation profits and processing margins will come under pressure, the company expects its business in China to &ldquo perform better&rdquo after the country ended its pandemic-related curbs.

 

CSE Global

 

Lim Boon Kheng, group managing director cum CEO of CSE Global, saw his stake in the company rise. On March 9, Lim, via his nominee accounts, acquired 171,600 shares at $59,202 or 34.5 cents each on the open market. The following day, he acquired another 693,000 shares for $239,085, also at 34.5 cents each. Lim has a deemed interest of 14.27 million shares or 2.321% and a direct interest of 2.41 million shares. This brings his total interest to 16.7 million shares or 2.713% after the transactions.

 

Before the acquisitions, the most recent buying by a CSE Global director was on Dec 22, when non-executive chairman Lim Ming Seong acquired 320,000 shares on the open market for $108,800, or 34 cents each, bringing his total interest, consisting of his own shares and some held by his wife to 4.79 million shares or 0.778%, up from 0.726% previously.

 

On Feb 27, CSE Global reported that revenue in FY2022 ended Dec 31, 2022 increased by 19% over FY2021 to $557.7 million, thanks to growth in infrastructure project revenues in Australia and the Americas.

 

However, earnings for FY2022 fell 68.2% to $4.8 million from FY2021 as the company suffered from lower margins from higher project execution costs and cost overruns due to supply chain disruptions. In addition, CSE Global restructured a business division in the US, booking one-off costs of $1.3 million.

 

The company plans to pay a final dividend of 1.5 cents.

 

To seek out new growth, CSE Global recently announced the acquisition of Radio One, a US-based radio communication group for US$11 million ($14.4 million). This is the second such acquisition in two months following the group&rsquo s acquisition of a group of wireless communications businesses for NZ$25 million ($21.3 million).

 

The deal was given the thumbs up by UOB Kay Hian&rsquo s analysts John Cheong and Heidi Mo, who described the acquisitions as &ldquo highly accretive&rdquo , raising their target price by 22% to 45 cents from 37 cents previously. The target price is pegged to 14 times earnings estimated for the current FY2023.

 

&ldquo Looking ahead, we will be laser-focused on integrating our latest acquisitions and executing backlog orders while closely monitoring our costs,&rdquo says Lim in the earnings commentary.

 

As at Dec 2022, CSE Global&rsquo s order book was $480.1 million.