Broker's take: Buy Wilmar on Q3 recovery, hold Noble and Olam, says Maybank Kim Eng

MAYBANK Kim Eng this week maintained a "neutral" rating on Singapore's listed commodities traders: Wilmar International, Olam International and Noble Group, citing a lack of near-term catalysts.

It is the most bullish on Wilmar, expecting it to make strong quarter-on-quarter recovery on better sugar and soyabean-crushing operations.

"We expect a net profit of US$350 million, down 16 per cent year on year but double quarter on quarter. The sequential strength could be traced to the start of the sugar-crushing season," said analyst Wei Bin.

"Brazil, the world's largest sugar producer and exporter, has been hit by serious drought this year, which may hurt its sugarcane yields. This could leave its mills with insufficient cane to last the entire crushing season.

"Crushers outside Brazil, such as Australia, could potentially steal market share. As the biggest crusher in Australia, Wilmar could benefit, in our view.

"We also anticipate a recovery in its soyabean-crushing margins in China. International soyabean prices fell 45 per cent during the quarter. With that, the spread between domestic and international soyabean prices widened above 1,700 yuan (S$353) per tonne.

"As Wilmar mainly uses international soyabean as feedstock, its soyabean-crushing margins should have improved," the analyst pointed out.

Wilmar is the only stock of the three that Mr Wei has rated "buy"; Noble and Olam are rated "hold", on concerns over Noble's big exposure to hard commodities, and Olam's still-weak balance sheet and cash flows, Mr Wei said.

Mr Wei expects a strong Q3 net profit of US$150 million for Noble, mainly because of a low base last year.

Its agriculture division should have benefited from the start of the sugar-crushing season, though to a lesser extent than Wilmar because Noble's sugar is all processed in Brazil, he explained. "(But) we think its energy division may disappoint mainly driven by poor coal prices. The margin outlook for the metal division is mixed. Sliding iron ore price may weigh on margins."

As for Olam, Mr Wei expects a net profit of just US$60 million, as the July-September quarter is typically its trough, and this one should be "no different, another non-event", he noted.


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