First Take: 2Q10 in line, seasonal weakness and one-off expenses
News
2Q10 net profit of US$344 mn was 17% below our US$414 mn estimate, dragged down by losses in the fair value of embedded derivatives in convertibles bonds. On an adjusted basis, we estimate that 2Q10 core net profit was only 8% below our quarterly estimate. On a YTD basis, 1H10 core net profit comprised 40% of our full year 2010E forecast, 42% of Bloomberg consensus. However, 1H tends to be a
seasonally weak period. Historically, Wilmar’s 1H has comprised between 37%-46% of the full year net profit (based on 2005-2009, excluding 2007 which was a merger year).
Analysis
Palm and Laurics margins and sales volumes were below expectations, we believe as the result of the weak industry-wide CPO (crude palm oil) production during the quarter (from yield stress, the lagged impact of
lower fertilizer application and as heavy rains hampered harvesting). With seasonally higher CPO production and stronger CPO prices in 2H, we believe Palm and Laurics volumes and margins may accelerate. This may
also benefit the Plantations division, which was seasonally weak in 1H. Oilseeds and Grains earnings performed in line with expectations, withstrong sales volumes, up 27% yoy in 2Q10, largely due to commencement of new plants for oilseeds crushing, flour and rice milling. The Consumer
Products division however did not perform well during the quarter, with sales and margins both below our expectations.
Implications
Overall we see the results as being in line with our expectations, but given the subjectivity in assessing Wilmar’s seasonal earnings trend, we believe there is a risk that the market may react negatively, but we maintain our Buy rating. No change to earnings or target price.
Rating: Neutral
Source: Goldman Sachs
