Wilmar reported its second quarter net profit surged more than five times to US$316.4 million, from US$58.96 million a year earlier, amid a stronger performance from the oilseeds and grains and tropical oils segments.
Revenue for the quarter rose 1.9 percent on-year to US$10.80 billion due to higher sales volume and commodity prices from the oilseeds and grains business, partly offset by lower commodity prices in both the tropical oils and sugar segments, it said in a filing to SGX after the market close on Monday.
Morgan Stanley analysts said in a note to clients on Monday that they remained cautious on the stock, despite earnings beating its estimates “across the board,” and it kept an Underweight call with a S$2.89 target price.
“We do not think that investors will react positively to these results,” Morgan Stanley said, noting the beat was likely trading related.
It pointed to an around US$500 million derivative gain the quarter.
“We deem this a low-quality beat. Secondly, amid U.S.-China trade friction, potential pressure on soybean crush margins will continue to form an overhang on Wilmar’s share price in the near term,” it said, although it pointed to potential upside risk from higher biodiesel demand, which could support downstream palm oil refining margins.”
The tropical oils, including plantation, manufacturing and merchandising, saw its pretax profit rise 165 percent on-year in the quarter to US$154.9 million, on better performances from the midstream and downstream businesses, Wilmar said. But sales volume from manufacturing and merchandising was slightly lower at 5.6 million metric tonnes in the second quarter, down from 5.8 million MT in the year-earlier quarter, it said.
Oilseeds and grains saw pretax profit for the quarter rise more than fourfold to US$290.2 million, up from US$60.3 million a year earlier on higher volume and good crush margins and a good performance from the consumer products business, it said.
The sugar segment’s pretax loss narrowed to US$46.2 million in the quarter from US$106.8 million in the year-earlier period amid better performance from the merchandising and processing operations, it said.
For the first half, net profit rose 29.6 percent on-year to US$519.7 million, while revenue was up 3.8 percent at US$29.97 million, Wilmar said.
It declared an interim dividend of S$0.035 a share, up 17 percent on-year.
Wilmar’s own outlook was cautiously optimistic.
“The trade tensions between the U.S. and China improved crush margins in the short term, thus benefitting our oilseeds crushing business. However, a prolonged dispute between the two countries will have a negative impact on crush margins due to lower plant utilisation,” Kuok Khoon Hong, chairman and CEO of Wilmar, said in the a statement.
“Nevertheless, we expect our other businesses such as consumer products, rice and flour milling to perform reasonably well in the coming quarters. While sustained low palm oil prices will affect our plantation business, our downstream businesses will benefit from increased demand and better margins for its products. Sugar performance should also improve in the second half of the year, with the commencement of crushing season in June,” he added.
This article was originally published Tuesday, 14 August 2018 at 8:06 A.M. SGT; It has since been updated.