• Maintain NEUTRAL, TP drops to SGD3.10 from SGD3.30, 0.3% upside. Wilmar’s 1H24 results came in below expectations. While we expect some improvements in 2H24, this will be offset by the still-weak economic environment in China. Its valuation should stay at a discount to its China- listed peers for the time being, until earnings turn around significantly.

• 1H24 core net profit accounted for 38% and 42% of our and Street full-year estimates, as 2Q24 saw a 15% QoQ decline in net profit. The main reason for the lower-than-expected profits was a weaker-than-expected share of profits from JVs and associates, as well as softer-than-expected FFB output, refining margins and sugar milling volumes.

• In 1H24, food product PBT rose 77% YoY, as sales volumes rose 7.3% QoQ but fell 9% QoQ in 2Q24. The YoY rise came from both the consumer products (+4% YoY) and the medium pack and bulk segment (+8.4% YoY). Margins strengthened in 1H24 to 1.1% (from 0.6% in 1H23, and vs 1.5% in 2H23). Going forward, margins should continue to stabilise as raw material costs have also levelled out.

• The feed and industrial division’s PBT surged by 34% YoY, as sales volumes rose 8.3% YoY in 1H24, while 2Q24 sales volumes grw 6.7% QoQ. The QoQ recovery came mainly from the oilseeds and grains (+19%) unit, which saw improving crushing volumes. The YoY recovery was driven by volume growth in all three segments, with sugar merchandising up 22% YoY, tropical oils up 5.4%, and oilseeds & grains up 4.6%. Going forward, management expects crushing margins to widen more significantly from 2H24 onwards, as hog and chicken prices rise – which would boost profitability in the oilseeds & grains segment. As for the tropical oils segment, refining margins remain compressed, given the current Domestic Market Obligation policy in Indonesia, and as such, we trim our margin assumptions accordingly.

• Plantation & sugar milling unit’s PBT fell 14% YoY on lower FFB output (6.4% YoY) and sugar milling volumes (13.7% YoY). 1H24 FFB output was affected by El Nino and, although the weather has normalised, Wilmar is lowering its FY24 FFB growth guidance to close to -5% YoY (from flattish). We trim FY24F FFB output growth accordingly to -5% YoY and narrow our assumption on its refining margins. Given the continued weak sugar prices, we have also cut our sugar milling margin and volume assumptions.

• We cut earnings by 14%, 9% and 8% for FY24-26F after trimming assumptions on JV and associate profits, FFB output, refining margins, and sugar milling volumes and margins.

• Our TP of SGD3.10 includes a 4% ESG premium. We believe Wilmar will trade in line with regional valuations, until earnings undergo a significant turnaround.

Source: RHB Research - 15 Aug 2024