Brokers' take

Wilmar International | Hold (maintained) Sept 4 close: S$3.84 Target price: S$3.89 Maybank Kim Eng, Sept 3

RECALL that Wilmar International's second quarter oilseeds & grains profit before tax fell 80 per cent year-on-year on the back of weak soybean crushing margins. Thankfully, August's Chinese crush margins rose sharply and so did palm-oil prices.

August's Chinese soybean crush margins rose to 241 yuan per tonne, their highest since October 2018, after posting losses in July.

Direct government intervention to address African Swine Flu (ASF) pork-supply disruptions likely played a part.

Recall that soybean meal is a key input of pig feedstock. The above should help turn around Wilmar International's oilseeds & grains segment, which contributes nearly 50 per cent to revenue.

Despite higher input costs, Indonesian bio-diesel margins have also remained positive. These combined should provide for a better 3Q19.

Still, we remain cautious as: (a) significant risks exist from escalating trade-war tariffs at the start of the North American soybean harvesting season; and (b) an effective resolution of the ASF remains elusive.

We prefer First Resources (Buy, Target price: S$1.80), which should benefit from rising palm-oil prices, its young acreage and low costs.

BreadTalk | Neutral (maintained) Sept 4 close: S$0.65 Target price: S$0.67 RHB Research Institute, Sept 4

ON Sept 2, BreadTalk announced the proposed acquisition of Food Junction for S$80 million.

Currently, Food Junction has 12 food courts in Singapore and three in Malaysia. Management considers the location of Food Junction food courts would complement well the existing portfolio of BreadTalk. In addition, Food Junction has a different value proposition from BreadTalk's Food Republic.

During the briefing yesterday (on Tuesday), management clarified that Food Junction's weak first half earnings were due to several factors that would no longer prevail once the acquisition is completed.

We estimate the group to incur around S$1.8 million of additional interest expense per annum to fund this acquisition, an amount which is likely to offset most cost synergies derived from the acquisition.

Post second half of FY2020, we think profitability could expand as the new management team will aim to improve Food Junction's average ticket size and table turns.

Compiled by Navin Sregantan

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