Brokers’ take: Wilmar Q3 results draw mixed reactions from brokerages

AGRIBUSINESS giant Wilmar’s latest set of financial results has drawn mixed reactions from brokerages with RHB Research raising its target price on the stock to S$5.40 from S$4.95, and Maybank Securities lowering its target to S$4.27 from S$4.47.

Their moves were based on opposing views on Wilmar ’s ability to replicate its strong Q3 FY2022 performance. 

In a report on Tuesday (Nov 1), RHB analysts noted that Wilmar’s Q3 results exceeded RHB’s projections to come in at 102-104 per cent. 

The research house has therefore raised its earnings estimates for FY2022 to FY2024 by 8-14 per cent, inclusive of a 2 per cent ESG (environmental, social and governance) premium. 

It continues to rate Wilmar at “buy” on the belief that the stock “remains severely undervalued”, with a forecast price-to-earnings (P/E) multiple of 7.9 for FY2023. 

Looking ahead, the team expects Wilmar’s margins to remain “relatively robust” – especially when the company begins reaping the full impact of its average selling price increases amid lower commodity prices.

In particular, RHB likes Wilmar for its combined stake in Yihai Kerry and Adani Wilmar, which is “almost double the value of (Wilmar’s) own market capitalisation”, in their view. Yihai Kerry is the group’s Chinese edible oil and grain subsidiary, and Adani Wilmar is its Indian food subsidiary.

Meanwhile, Maybank Securities’ research team expressed doubt on Wilmar’s ability to replicate its strong Q3 results. 

The brokerage cut its target price to S$4.27 from S$4.47, but maintained its “hold” call on Wilmar in a report issued on Monday. 

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While the team raised its earnings per share estimate for FY2022 by 14 per cent in light of Wilmar’s financial performance, it lowered projected earnings for FY2023 to FY2024 by 7-16 per cent.

It also questioned whether Wilmar’s higher Q3 margins – the highest since two years ago – were “one-off”, since profits were driven by better associate contributions and a lower effective tax rate. 

Additionally, Maybank’s analysts foresee slower economic growth as well as prolonged Covid-19 restrictions in China, where a significant portion of Wilmar’s operations are based. 

“With the potential for further lockdowns and a global recessionary scenario, it is hard to call an inflection point on Chinese demand, in our view,” they said. 

Coupled with global recessionary risks, Maybank believes this will post a threat to Wilmar’s margin and volume expansion in future. 

CGS-CIMB expressed similar sentiments in its Oct 28 report, projecting a lower core net profit of US$400 million for Q4 FY2022. 

While it acknowledged that Wilmar’s latest set of Q3 results were better than expected, the research house attributes this performance to a lower effective tax rate and higher associate contributions. 

“The group’s nine-month FY2022 net profit is only 3.5 per cent shy of its FY2021’s core net profit of US$1.84 billion and has exceeded all its past year’s core net profit before FY2021. Over the past 10 years (excluding 2016), nine-month core net profit had made up 70 per cent of its full-year core net profit on average,” noted its analysts. 

The research house nonetheless maintains “add” on the stock with an unchanged target price of S$4.68. It continues to like Wilmar for its “attractive” FY2022 P/E valuation multiple of 7.5 times, with a dividend yield of 6 per cent. 

Shares of Wilmar were trading down 0.3 per cent or S$0.01 at S$3.87 as at 2.50 pm on Tuesday.