While Wilmar’s share price appears to have fallen on uncertainty over the U.S.-China trade war, the plunge in the price of its key input, soybeans, amid tariff threats should mitigate the impact, RHB said in a note this week.
“We think the recent retracement in share price offers a good opportunity to accumulate the stock,” it said.
“With soybean as one of its key commodities, Wilmar is likely to be affected by a trade war between the U.S. and China,” RHB said. “However, U.S. soybean prices have also plummeted significantly since the 25 percent tariff recommendation. This should help to mitigate pressure on its raw material costs.”
It noted that the Chicago soybean futures contract was down around 20 percent from its March peak, meaning that even if the 25 percent tariff comes into effect, the cost would likely be similar to pre-trade-war levels.
Wilmar’s margins may not be affected much, RHB said.
“Given today’s higher utilisation rate of the crushing facilities and lower soybean prices, we think our current margin assumptions of US$12.50/tonne and US$12.00/tonne for FY18-19 are achievable,” it said.
RHB also noted that CEO Kuok Khoon Hong and non-executive director Kuok Khoon Hua have been buying back shares in the market at S$3.04-S$3.20, which the brokerage said it believed signaled management’s long-term confidence in the company.
It kept a Buy call with a S$3.59 target price.
“Our forecasts remain largely unchanged as we believe the China-U.S. trade tariffs should not have a major negative impact on Wilmar’s earnings,” it said.
Shares of Wilmar opened flat at S$3.02.