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.

Wilmar

Share price: 
S$4.08

Target: 
S$4.82

■ We project FY23F core net profit to fall 16% as we expect lower CPO price and palm oil processing margins, as well as a higher effective tax rate.

■ Reiterate Add with an higher SOP-based TP of S$4.82.


Wilmar Nodeforest1.21
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.

Record dividends
"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.

IvyNg1.14Ivy Ng, analystHowever, 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.

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