Wilmar International: Stronger then expected 2Q09

Ahead of expectations. Wilmar's 2Q09 EBIT and net profit rose by 8.8% and 14.0% y-o-y to US$538.7m and US$378.1m, respectively - despite a 27% y-o-y drop in revenues to US$5,712.3m. The group's 2Q09 pretax margin eased to 9.2% from 10.5% in 1Q09, but rebounded from 5.6% in 2Q08. Sequentially, palm & lauric merchandising and processing (M&P) pretax margin/MT declined to US$41 (from US$55 in 1Q09); although that for oilseeds dropped to US$27 (from US$47 in 1Q09). While flat to weaker oilseeds M&P margin was anticipated, that for palm & lauric came out stronger than expected. The group's consumer products also posted strong pretax margin of US$88/MT (vis-vis our initial forecast of US$35/MT for the full year).

Recovering commodity prices reflected in higher debts. Short-term borrowings increased to US$6.1b from US$3.4b in 1Q08 mainly to account for higher working capital needs on recovering feedstock prices q-o-q. Total borrowings increased to US$7.7b at the end of June translating to net gearing ratio of 37.8%, up from 22.6% in 1Q09.

TP upgraded to S$7.25, Buy call reiterated. We raised our assumption of palm & lauric M&P margin to 5.8% (from 4.4%); but reduced that for oilseeds M&P to 7.0% (from 7.7%). We also raised consumer products' margin assumption to 7.0% (US$87/MT) from 2.8% (US$35/MT), in light of the stronger-than expected performance. FY09F-10F earnings were hence upgraded by 13.2%-12.5%. We raised our DCF-derived, fully diluted fair value to S$7.25 (WACC 9.8%, terminal growth rate 3%). Our Buy call is reiterated for 16% upside (excluding 1% FY09F dividend yield).

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