Wilmar to post better Q3 performance on strong plantation, sugar mills segment: UOBKH

WILMAR International's F34 third quarter results for 2021 will likely be stronger on quarter due to better contributions from its plantation and sugar mills, and feed and industrial products segments, UOB Kay Hian (UOBKH) said.

The brokerage expects the agribusiness giant will post core net profit of between US$450 million and US$480 million, up from US$309 million in Q2 2021.

Nevertheless, results are likely lower on year, given that Q3 2020 - with core net profit of US$500 million - was "an exceptionally strong quarter", the brokerage team said.

The plantation and sugar mills division will likely "post stellar performance" driven by higher average selling prices for both crude palm oil and raw sugar, although UOBKH expects flat to marginal growth in sales volume due to the weak production as a result of bad weather.

The brokerage also expects tropical oil to again be the "star performer" with greater volume and better margins from its timely purchase of raw materials.

Furthermore, soybean crush volume likely improved in Q3 2021 due to a higher demand for soybean meal.

Soybean meal is used with corn in mixed animal feeds. Cheaper wheat prices in H1 had replaced corn meal with wheat meal in mixed animal feeds, but corn prices have since weakened while wheat prices strengthened, thus the former regained its share in the animal feed formula.

China's power shortage - which led to a temporary operational shutdown - have also driven an increase in soybean meal prices, boosting soybean crushing margins.

While some of Wilmar's plants had operations cut short due to the power shortage, the overall impact on operations and sales is marginal; the group may also gain from higher sales volumes as supplies from some peers are still being affected by shutdowns, UOBKH said.

The food products segment, however, may not be able to meet its strong performance in 2020 as the surge in raw materials prices cannot be fully transferred to the selling price for consumer products due to a highly competitive market.

Additionally, Adani Wilmar's initial public offering - which received approval from the Securities and Exchange Board of India in October - is also on track, and the company will likely list in India by end 2021 or Q1 2022.

UOBKH has a "buy" call and target price of S$6.40 on Wilmar. The brokerage team said they "like Wilmar for its diversified and integrated business model which has delivered good results performance" despite the global uncertainty amid the Covid-19 pandemic.

Shares of Wilmar were trading at S$4.39 as at 9.41 am on Thursday (Oct 21), up S$0.03 or 0.7 per cent.

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