What surprised us
After adjusting for non-recurrent items, including US$182mn (pre-tax) of
forex gains, we estimate that core FY2008 net profit was 12% ahead of our
forecast, and in line with Bloomberg consensus. The palm and laurics (i.e.
palm oil refining) segment posted better-than-expected margins,
plantations earnings surprised on higher production volume and forward
sales of CPO (crude palm oil) at higher prices and taxation was lower than
expected. 4Q08 Oilseeds and Grains margins were also adversely affected
by collapsing freight rates that Wilmar could not fully hedge. Management
believes that even with the weak economic conditions, food demand
should stay resilient and Wilmar targets volume growth for its
downstream businesses in 2009, while profit margins should be stable.
What to do with the stock
We expect the stock to react positively to the results and analyst briefing at
lunchtime today (Feb 27). Despite the strong results, we are not changing
our 2009E-2010E downstream margin assumptions, and there are no major
earnings revisions. We are also introducing our 2011E. Our Buy rating and
S$3.15 12m P/E-based TP are unchanged. Risks to our target price include
sharply lower CPO prices and if downstream margins disappoint.
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