Maybank KimEng downgraded Wilmar to Hold from Buy last week, pointing to the disruption from an outbreak of African swine flu in China.
“Improvements in soybean crush margins in the first quarter of 2019 were unable to be sustained as demand destruction from the African Swine Flu (ASF) epidemic in China continued to bite,” Maybank KimEng said in a 14 August. “Visibility of a full recovery from ASF in China remains unclear, creating downside risks.”
Maybank KimEng said Wilmar’s first half earnings were “a major miss.”
Wilmar reported 13 August that its second quarter net profit dropped 52.3 percent on-year to US$150.9 million, partly on lower soybean crush margins and on weaker performance from the sugar division.
The brokerage said that while management said the oilseeds and grains segment should see a margin improvement in the second half of the year, a full recovery from the ASF hit could take years.
On the upside, the tropical oils segment, got a boost, likely on increased palm oil demand in China and higher bio-diesel mandates in Indonesia, the note dated 14 August said.
“We expect these drivers to continue to support growth and also contribute to partially offsetting weakness in oilseeds and sugar,” Maybank KimEng said.
It added, the planned fourth quarter listing of Wilmar’s China business on the mainland stock market — where peer valuations are nearly 60 percent higher — should offer downside support for the shares. At China’s regulatory maximum IPO valuation of 23 times 12-month historical earnings, Wilmar could raise US$1.5 billion, the note said.
Maybank KimEng estimated the listing could result in a special dividend of S$0.16 a share from capex savings once the China business is listed.
The brokerage lowered its earnings estimates for Wilmar by 6 percent to 13 percent for 2019-21 on changes to margin expectations. It cut its target price to S$3.89 from S$4.21.
Shares of Wilmar ended Monday up 2.69 percent at S$3.82.