not vested
Wilmar International – BUY
Share price dragged down by haze issue. The annual haze event was more severe this year in early-September with the extended drier weather bringing more attention to plantation companies.
Wilmar’s share price had dropped by 3% after the Greenpeace publication on Indonesia’s burnt land area despite the company not being in the list of companies highlighted in the publication.
We opine that the weaker share price performance was mainly due to the environmental, social and governance (ESG) issue that more funds are paying attention to in recent years.
We note that post the Greenpeace press release, Singapore plantation companies’ share prices have declined by 3%.
Upcoming results could be a price catalyst. The earnings outlook for 2H19 should be better on the back of improving soybean crush utilisation, increasing sales volumes and sustainable and healthy palm refining margins.
Soybean crushing margins improved on the more upbeat demand for soymeal with feed demand from the poultry and aqua sectors partially offsetting lower demand from the swine sector. China consumers are also substituting pork meat with other sources of proteins.
Being the largest palm oil processing company, Wilmar is benefitting from the low palm prices while seeing strong demand, especially from the two its major markets – India and China.
Low prices with good demand volumes have translated into better PBT margins for 1H19 at 4.8% vs 2.2% and 3.2% for 2017 and 2018 respectively. We believe these margins would be sustainable in 2H19.
Share Price Catalysts
Event: Announcement of the final approval for the listing of Yihai Kerry Arawana Holdings.
Timeline: 1-3 months.
Source: UOBKH