• D/G to NEUTRAL from Buy, new SGD3.50 TP from SGD4.10, 8% upside. 1Q24 results were below expectations. While expecting some improvements in 2H24, this will be offset by the still weak Chinese economy, in our view. We believe Wilmar International’s valuations will remain at a discount to its China-listed peers for now – until earnings make a significant turnaround.

• 1Q24 core net profit accounted for 19-20% of our and Street’s full-year estimates (-14% YoY, -24% QoQ). The main reasons for this: Lower share of profits from JVs and associates in China and weaker-than-expected sales volumes from all three segments of the feed and industrial division. This was offset by stronger-than-expected sales volumes at the food products unit.

• In 1Q24, food product sales volumes jumped 5% QoQ (+14% YoY), driven by the consumer products segment (+33.5% QoQ, +6% YoY) and – to a smaller extent – the medium pack and bulk business (-3.5% QoQ, +17.7% YoY). Margins were also boosted by lower raw material prices during the quarter. Going forward, management believes margins should stabilise, as raw material costs have also stabilised.

• The feed and industrial division saw volumes slip 12.5% QoQ but rise 7% YoY in 1Q24. The latter was driven by the oilseeds & grains (+6.3% YoY) and sugar merchandising (+21.6% YoY) segments. However, the QoQ decline was due to a volume reduction in all three businesses, with the sugar merchandising segment falling 24% QoQ while the tropical oil and oilseeds & grains segments fell 9% and 7.5% QoQ. While the tropical oil and oilseeds & grains units’ QoQ declines were likely seasonal in nature, the sugar merchandising division was affected by lower raw sugar prices and trading losses. Going forward, management expects crushing margins to see more significant improvements from 2H24 as hog prices rise - which would boost profitability in the oilseeds & grains business. As for the tropical oils segment, refining margins remain compressed, but management expects this to pick up in 2H24 when palm output rises and domestic prices fall. For the sugar merchandising division, Wilmar expects margins to improve from 2Q24, as raw sugar prices have stabilised somewhat.

• No volume disclosures were given for the plantation and sugar milling divisions, but volumes are also likely to be weaker YoY due to seasonalities. Management expects CPO volume output to see a slight increase YoY, with growth being registered in 2H24.

• We bring down earnings by 11.7-14.7% after trimming volume growth assumptions for all three segments of the feed and industrial division.

• Downgrade to NEUTRAL with lower SGD3.50 TP, which includes a 4% ESG premium based on its 3.3 ESG score vs the 3.1 country median.

Source: RHB Research - 2 May 2024