• Wilmar International’s 1H21 core net profit was in line with expectations at 46% of our and consensus’ full-year estimates.
• 1H21 net profit grew 15% y-o-y, thanks to better earnings from all segments except food products, which was impacted by higher commodity prices.
• We expect stronger 2H21 earnings; maintain ADD on Wilmar due to its attractive valuations and plans to list 50%-owned Adani Wilmar.

Wilmar's 1H21 Core Net Profit Broadly in Line, Positive on Higher Dividend

• Wilmar International (SGX:F34) posted a 15% y-o-y rise in its 1H21 core net profit (excluding gains from non-operating items of US$18.7m) to US$732m due to better performances from all divisions except food products.
• We consider the 1H21 core net profit to be broadly in line, as it makes up 46% of our and consensus full-year projections. Over the past ten years, 1H core net profit has on average made up 35% of its full-year core net profit.
• 2Q21 core net profit fell 27% q-o-q to US$309m, likely due to the absence of reversal of marked-to-market losses on hedging derivatives relating to its soybean crushing business in 1Q21.
• An interim dividend of S$0.05 was declared in 1H21 (vs. S$0.04 in 1H20), representing a dividend payout ratio of 42% in 1H21, the highest interim dividend from since Wilmar's listing.

Key Takeaways From Wilmar's 1H21 Earnings

• The food products segment posted a 13% y-o-y decline in pretax profit to US$428m in 1H21 as profit margin was negatively impacted by the higher by lower soybean crushing volume and higher raw capitalisation of maintenance costs in sugar results from its investments in Africa, Europe and China.

Expect Most Divisions to Perform Better in 2H21

• Wilmar revealed that the feed and industrial segments should continue to perform well due to positive downstream margins and strong demand for tropical oils. Plantation and sugar milling will continue to benefit from higher palm oil and sugar prices. It also expects its crush margins to improve in 3Q, from the depressed levels in 2Q.

Reiterate ADD on Wilmar With An Unchanged SOP-based Target Price

• We are maintaining our SOP-based target price of S$6.15 per Wilmar share and to seasonal factors.

• We remain positive on Wilmar due to its attractive inability to pass on higher raw material costs.

Source: CGS-CIMB Research - 12 Aug 2021