Despite 2Q09 headline revenues declining by 27% YoY, sequential revenues have actually increased by 15% to US$5.7bn, on the back of a recovery in commodity prices. More encouragingly, however, sales volumes have increased across the board, with the minor exception of consumer products.
Despite this, the consumer division managed to hold on to its uncharacteristically high margins at 7.2%, versus 8.4% in 1Q09 and 1.6% in FY08. Merchandising & Processing saw some sequential erosion of margins, due to higher commodity input prices, but is still handily ahead of last year’s average. Its upstream Palm Plantation and Milling business naturally showed an increase in margins, from higher CPO prices.
We are raising our FY09 forecast by 21% to US$1,631m, and by 15% in FY10 and FY11. This implies a 3-year earnings CAGR of 10% versus our previous expectation of around 5%. Aside from the recovery in CPO prices, Wilmar will also be a beneficiary of an economic recovery in China and India, and has an established distribution network that it can use to grow its existing and new businesses.
With the earnings upgrade, we are raising our target price of Wilmar to S$7.50, from S$5.70 previously, and assigning a premium valuation of 20x FY09 earnings. Its application to list its China businesses in Hong Kong was recently approved, and we believe that Wilmar will be able to secure above-average valuations. We expect the listing to take place within the next two months, and strong investor interest in the stock is likely to continue, leading up to this.
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