|UOB Kay Hian has just pegged a $5.50 target price for Wilmar based on sum-of-the-parts valuation methodology. It pegged a 2023F PE of 17x for the China operations and a blended 11x PE for the non-China operations.
The fair value of S$5.50 translates to a blended 2023F PE of 15.3x.
Meanwhile, CGS-CIMB has a more conservative target price of $4.82. Excerpts below:
Excerpts from CGS-CIMB report
Analyst: Ivy Ng
FY22 earnings above, but dividends below
|■ Wilmar’s final FY22 core net profit beat expectations, thanks to lower-than-expected effective tax rate. However, final dividend was below expectation.
■ Reiterate Add with an higher SOP-based TP of S$4.82.
FY22 final results above, thanks to lower effective tax rate in 2H22
Wilmar posted a 14% yoy rise in its 2H22 core net profit to US$1.26bn, driven by lower effective tax rate of 14% in 2H22 vs.23% in 2H21.
|"A final dividend of S$0.11 was declared, bringing full-year dividend to S$0.17 – its highest since listing but still below our estimate of S$0.21."|
This brought FY22 core net profit to a record high of US$2.42bn (+31.3% yoy), above our and Bloomberg consensus estimates by 6% and 10%, respectively.
The better-than-expected 2H core net profit were due to a lower-than-expected effective tax rate of 14% in 2H22, which was likely due to higher offshore hedging profit in Singapore, which attracted corporate tax rate of only 5%.
Wilmar’s 90%-owned YKA posted a 27% yoy fall in FY22 net profit to US$438m (18% of Wilmar’s FY22 net profit) due to higher raw material costs. The record core net profit of US$2.42bn achieved in FY22 is 89% higher than its historical 10-year average net profit of US$1.28bn.
2022 an exceptional year; net profit crossed the RM2bn mark
Wilmar deemed FY22 as an exceptional year. The group managed its operations well amidst high volatility in the commodity markets (due to Russia-Ukraine war, CPO export ban by Indonesia), rising interest rates, and China’s zero-Covid policy.
Wilmar posted a 13% increase in pretax profit in 2022, driven mainly by a 23% rise in PBT for its feed and industrial segment. The food products segment posted a 6% rise in PBT in 2022 due to the gain on dilution of interest in Adani Wilmar Limited (AWL) amounting to US$175.6m which was recognised in 1Q22.
Excluding this gain, we estimate this segment would have posted a 20% decline in PBT due to higher raw material costs and lower consumer products sales volumes in China. The group’s plantation and sugar milling pretax profit rose only 1% yoy in FY22 as higher costs of production offset the impact of rising CPO prices.
|FY23F to be more challenging, FY22’s record profit tough to beat
We project Wilmar to record a 16% yoy decline in FY23F net profit due to lower CPO prices and palm processing margin as well as a higher effective tax rate.
However, this will be partially offset by higher food products profit due to lower raw material costs. We project average CPO price to fall 25% in 2023F, and mid-to downstream palm business to record lower profit margin due to lower volatility in commodity prices.
Our SOP-based TP is raised to S$4.82, after we revised it to reflect the market capitalisation of YKA and Adani Wilmar.
The implied FY23F P/E of our revised TP is 12x (historical 10-year mean P/E).
Maintain Add as Wilmar offers attractive FY23F P/E valuation of 10x and FY23-24F dividend yield of 4%.
Key downside risks: inability to pass on rising costs and higher effective tax rate.
Re-rating catalysts are plans to unlock values and earnings accretive M&A.
Full report here.