Brokers’ take: Maybank downgrades Wilmar to ‘hold’ on weaker near-term outlook
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Michelle Zhu
LIMITED near-term catalysts and increasing downside risks to average selling prices for Wilmar International has prompted Maybank Research to downgrade its call on the stock to “hold” from “buy” with a lower price target of S$4.47 compared to S$6.56 previously.
The research house now prefers Indonesian palm oil producer Bumitama Agri for its strong output outlook, valuations and yield. The stock has been rated “buy” with a S$0.98 price target.
In a report on Friday (Aug 5), analyst Thilan Wickramasinghe noted Wilmar’s growth in H1 FY2022 was mainly driven by higher upstream palm oil prices which are likely to moderate as supply conditions improve, in his view.
The stock’s peer weighting has also been slashed by half to 10 per cent as Wickramasinghe believes Wilmar trades at a “massive discount” to its own listed parts elsewhere.
In light of potential “demand destruction” amid the current inflationary backdrop, “significant uncertainty” around China’s eventual re-opening as well as regional markets and Europe facing a slowdown and recessions, Wilmar’s forecasted FY2022 to FY2024 segment volume has been lowered by 21 to 27 per cent.
Overall volumes are expected to decline 9.2 per cent year on year (y-o-y) for FY2022, although Maybank believes a 2 per cent y-o-y recovery could be on the cards in the following fiscal year.
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With the latest adjustments to Wilmar’s forecasted volumes and margins, the group’s projected net profit after tax for FY2022 to FY2024 has been lowered by 1-11 per cent.
“Typically, Wilmar’s integrated business model would offset upstream margin squeeze with downstream expansion. However, in the current backdrop of recession, inflation and prolonged lockdowns in China, upside here may be limited,” said Wickramasinghe.
“We see limited catalysts for the stock to re-rate until better clarity on Chinese re-opening and global growth comes.”
As at 9.34 on Monday, shares of Wilmar were trading down S$0.14 or 3.4 per cent at S$4.16.
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