How Wilmar will benefit from Malaysia's B5 biodiesel order

New mandate rolls out  mid-2014.

According to CIMB, Malaysia is on track  to implement B5 by mid-2014 and  B10 thereafter. A RM300m grant to  build biodiesel blending and storage facilities and the proposed extension of the diesel subsidy to the biodiesel sector have been approved. There are also plans for the B5 and B10adoption to cover the commercial sector, which do not currently enjoys fuel subsidy.

CIMB noted that its key pick  in the sector is Wilmar which is expected to be less affected by the weaker CPO  price prospects as it derives most of its earnings from refining CPO products. 

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" An escalation in mass culling may cut soybean meal demand/prices, and in turn, crush margins in China," it says, noting CBOT front-month soybean futures fell by 6% over the past week on fears export demand would slow on the culling. But DBSV notes the culling has been insignificant so far and it is keeping its FY13 oilseed and grains pretax margin forecast intact.

If a slowdown in soybean imports and crushing has consequences for China's domestic soybean-oil supply, palm-oil imports could increase as a substitute, with palm oil prices likely to continue to recover, the house says. But it adds, Indonesian refining margins are weakening and could be even lower if imputing trade barrier costs such as an Indian import tax.

It cuts Wilmar's FY13-15 earnings forecasts by 4%-8% and lowers its target to $3.72 from $3.88. It keeps a Hold call. The stock is down 2.7% at $3.30.