ANALYSTS cut their price targets for Wilmar International on uncertainty in its China business, and after the company reported third-quarter earnings that showed net profit fell.
The agribusiness group on Wednesday (Oct 30) reported that its net profit fell by 19 per cent to US$254.4 million in Q3 from US$313.9 million in the corresponding period a year ago. There was an even sharper drop in core net profit by 35.7 per cent year on year to US$208.1 million from US$323.6 million.
This came despite increased sales volumes as the company saw margins tighten on lower contributions from its China business and sugar division.
Maybank Securities in a Monday report said it has lowered its price target for the stock to S$3.17 from S$3.25 while maintaining its “hold” call.
Maybank analyst Thilan Wickramasinghe said: “Despite increases in volume across all business segments, tightening margins persist due to depressed commodity prices, weakness in China’s recovery and weak (performance from Wilmar’s) sugar (division).”
Noting that the company will require a “clear, sustained recovery” in its China business, a turnaround remains “some way off in the near-to-medium term”, he noted.
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Wickramasinghe said that Maybank is lowering its earnings per share estimates for the financial years 2024 to 2026 by 1 per cent each to reflect lower prices.
Wilmar is expected to continue facing headwinds, as its third-quarter results signal that its tropical oils recovery remains “under pressure”, he added.
Near-to-medium term visibility for Wilmar’s prospects is limited, but Wickramasinghe expects that a clearer picture of its China business’ recovery trajectory will emerge after the US presidential election concludes – particularly with regard to potential tariffs and trade fallouts.
In light of this uncertainty, he maintains his “hold” call on the stock.
CGS International Securities trimmed its price target for Wilmar to S$3.47 from S$3.63 on account of its “subdued” profitability and as its performance for the first nine months of FY2024 “missed expectations”.
“Our price target is lowered to S$3.47 after rolling forward our valuation to FY2026 forecasts,” the research house said.
“We think Wilmar’s profitability bottomed out in Q3 of FY2024,” it added.
CGS International Securities analyst Tay Wee Kuang in a Monday research report said that he expects the company’s fourth-quarter profits to remain weaker on year because of a “high base effect from elevated sugar prices” in Q4 of 2023.
“We reduce our FY2024 to FY2026 earnings per share forecasts by 6.8 to 9.9 per cent due to ongoing margin pressure,” Tay added.
However, he expects the firm to clock higher profits in FY2025, as Indonesia’s biodiesel target is set to be favourable for the company. The country plans to raise mandatory palm oil-based biodiesel blending from 35 per cent currently to 40 per cent in January 2025 and 50 per cent in the early part of the year.
“Wilmar should benefit from the roll-out of the B40 biodiesel mandate in Indonesia given its position as the largest biodiesel producer by volume in Indonesia, as well as lower finance cost on interest rate cuts,” he noted, referring to the 40 per cent blend.
A potential sale of its stake in Adani-Wilmar, its joint venture with India’s Adani Group, is expected to be completed by FY2024, and this may result in one-off gains for Wilmar, Tay said.
Wilmar’s shares were trading up 1.3 per cent or S$0.04 at S$3.13 as at 3.59 pm on Tuesday.
