Brokers’ take: CGS-CIMB raises target price on Wilmar, warns of challenging FY2023

CGS-CIMB raised its target price on Wilmar International to S$4.82 from S$4.68, to reflect the market capitalisation of the group’s subsidiaries, Yihai Kerry Arawana and Adani Wilmar.

The new target price implied a valuation of 12 times the brokerage’s estimated FY2023 price-to-earnings (PE) for the group, which was also in line with the stock’s historical 10-year mean PE. 

In a report on Tuesday (Feb 21), CGS-CIMB analyst Ivy Ng said she expects a more challenging FY2023 for Wilmar, after the group reported FY2022 results that exceeded the brokerage’s expectations by 6 per cent.

In the research house’s view, FY2022’s record results will be “tough to beat” as it was deemed an exceptional year for the group, given a lower-than-expected effective tax rate recorded in the second half of the year. 

Wilmar is projected to record a 16 per cent year-on-year decline in FY2023, based on CGS-CIMB’s expectations of lower crude palm oil (CPO) prices, a lower palm-processing margin and a higher effective tax rate. 

Average CPO prices are expected to fall by 25 per cent. The group’s mid-to-downstream palm business is also expected to record lower profit margin, due to less volatility in commodity prices.

These factors may nonetheless be partially offset by higher profit in the food products segment, on the back of decreased raw material costs. 

The segment posted a 6 per cent rise in profit before tax (PBT) in FY2022. This was due to the US$175.6 million gain on dilution of interest in Adani Wilmar, which was recognised in Q1 FY2022.

Excluding this gain, Ng estimated that this segment would have posted a 20 per cent decline in PBT, because of higher raw material costs and lower consumer products sales volumes in China.

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CGS-CIMB maintained its “add” call on Wilmar and said it continues to like the stock for its “attractive” FY2023 PE valuation multiple of 10 times and dividend yield of 4 per cent.

While the group’s final dividend of S$0.11 missed the brokerage’s estimate of S$0.21, Ng highlighted that Wilmar managed its operations well, amid high volatility in the commodity markets in FY2022.

Shares of Wilmar International were trading at S$4, up 0.5 per cent or S$0.02, as at 11.40 am on Wednesday.