DBS Group Research has lowered its target price for Wilmar International : F34 0% by 18.9 per cent to S$4.30 from S$5.30, in a report on Monday (Oct 30).

The cut comes as the research team pegs the agribusiness group to a FY2024 price-to-earnings ratio of 13 times, which is largely in line with palm oil peers and 50 per cent to 60 per cent below the valuation of consumer companies.

That being said, DBS maintained its “buy” call on the group. It believes Wilmar’s FY2024 earnings could recover from the low level projected for FY2023, supported by the trend in improving sales volumes for tropical oil and food products.

“The recovering sales volumes for consumer products will also propel higher profitability ahead,” said DBS analyst William Simadiputra.

He believes the group’s tropical oil division will gradually normalise on improving crude palm oil (CPO) prices in 2024, followed by an improvement in refining margins. However, it is unlikely that the performance will hit the record high seen in 2022.

The group’s Q3 results, released on Oct 26, were in line with RHB and CGS-CIMB’s expectations. Wilmar had reported a 59 per cent drop in net profit to US$313.9 million, from US$766.2 million in the year-ago period.

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RHB has maintained “buy” on Wilmar with an unchanged target price of S$4.25, while CGS-CIMB retained its “add” call and target of S$4.05.

RHB expects to see a similar performance for Wilmar in the fourth quarter of 2023, but remains wary of geopolitical risks.

It noted that the stock “remains undervalued”, trading at 9.8 times the research team’s FY2024 price-to-earnings estimates, versus the 20 times to 40 times range observed for Wilmar’s China-listed peers.

Both research houses kept their estimates unchanged.

CGS-CIMB believes that Wilmar could continue to benefit from consumption recovery in China, but also noted that the group tends to experience a seasonally stronger third quarter in terms of sales volume due to China’s festive season in the fourth quarter.

Although elevated sugar prices could support the group’s sugar milling margins and merchandising activities, the easing of CPO prices and China swine prices could impact the profitability of its feed and industrial products segment, as well as its plantation and sugar milling segment.