UOB KayHian stays positive on Wilmar despite earnings miss

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UOB KayHian said it’s staying positive on Wilmar despite first quarter earnings missing its expectations, keeping a Buy call.

Wilmar reported net profit for the first quarter dropped 40.6 percent on-year to US$203.3 million, while revenue rose 5.7 percent to US$11.17 billion. It reported core net profit of US$183.5 million, down 37.4 percent on-year. UOB KayHian had previously forecast core net profit of US$320 million to US$360 million for the quarter.

“We expect the shortfall in the first quarter of 2018 to be made up for over the next two quarters,” the brokerage said in a note on Monday. It said the delay in profit recognition was due to the timing of deliveries in the sugar division and the lagged impact of prices committed to under earlier soybean meal contracts, which mean a crushing-margin expansion wasn’t yet reflected.

“We estimate that only around 60 percent of 2017’s sugar production was sold over the last three quarters and the remaining could be delivered in the next quarter,” it said. “If the remaining 40 percent is delivered in the second quarter of 2018, we will be able to see significant contribution from sugar milling.”

UOB KayHian also expected higher palm oil production would produce better volumes and margins in the second quarter.

It trimmed its 2018 earnings forecast by 6.5 percent on lower sugar contribution as sugar prices remained under pressure globally, with significant recovery unlikely within the current planting season. That resulted in a lower target price of S$3.90 from S$4.10.

The stock ended Monday up 0.32 percent at S$3.17.