DBS Vickers Securities has upgraded Wilmar International from its previous “hold” rating to “buy” with a target price of $3.76.
This makes it the only stock DBS would recommend a “buy” in the region’s planation sector, despite forecasts of reduced CY16F palm oil output for Malaysia and Indonesia, lower 4Q16 prices, and reduced FY17F CPO prices by 3% which could yield an up to 25% cut in FY17F earnings.
Analyst Ben Santoso explains in a Tuesday report believes Wilmar’s recent share price correction is “excessive” and states that the group’s FY16F-19F earnings are “below consensus on conservative processing margin assumptions”.
DBS expects Wilmar to produce 1.3 tonnes of biodiesel in Indonesia this year, and the group’s capital expenditure forecasts have been maintained at US$913 million ($1.2 billion) and US$855 million for 2016 and 2017 respectively.
As pointed out by Santoso, soybean spot crush margin has rebounded since April following excessive soybean arrivals in China during March this year. Wilmar’s share price is linearly driven by palm oil refining or soybean crushing margins on top of CPO or sugar price expectations.
The group’s earnings have also been adjusted upwards to reflect changes in benchmark CPO price forecasts by a rise of 6% to US$639 in CY16F. This was mainly due to a widening palm oil deficit on what the research house says is a “worse-than expected El Nino impact” as well as a YTD surge in soybean prices on reduced South American crop.
Santoso cites recent improvements in China’s spot crush margins, continued sizeable allocation in Indonesia’s biodiesel mandate, and potential India expansion through Adani-Wilmar’s proposed joint venture with Ruchi, as likely factors to drive the group’s near- and medium-term growth.
Although DBS projects sequential improvements in 2Q16 and 3Q16 earnings delivery for the group, Santoso says the research house is maintaining its conservative forecasts for Wilmar, as it expects processing margins to be moderate in 4Q16.
Santoso adds there is a downside risk to the research house’s CPO price forecasts in the case of Pertamina’s biodiesel offtake failing to live up to its expectations of 2.5 million kilolitres this year.
Wilmar International closed at $3.29 on Thursday.
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This makes it the only stock DBS would recommend a “buy” in the region’s planation sector, despite forecasts of reduced CY16F palm oil output for Malaysia and Indonesia, lower 4Q16 prices, and reduced FY17F CPO prices by 3% which could yield an up to 25% cut in FY17F earnings.
Analyst Ben Santoso explains in a Tuesday report believes Wilmar’s recent share price correction is “excessive” and states that the group’s FY16F-19F earnings are “below consensus on conservative processing margin assumptions”.
DBS expects Wilmar to produce 1.3 tonnes of biodiesel in Indonesia this year, and the group’s capital expenditure forecasts have been maintained at US$913 million ($1.2 billion) and US$855 million for 2016 and 2017 respectively.
As pointed out by Santoso, soybean spot crush margin has rebounded since April following excessive soybean arrivals in China during March this year. Wilmar’s share price is linearly driven by palm oil refining or soybean crushing margins on top of CPO or sugar price expectations.
The group’s earnings have also been adjusted upwards to reflect changes in benchmark CPO price forecasts by a rise of 6% to US$639 in CY16F. This was mainly due to a widening palm oil deficit on what the research house says is a “worse-than expected El Nino impact” as well as a YTD surge in soybean prices on reduced South American crop.
Santoso cites recent improvements in China’s spot crush margins, continued sizeable allocation in Indonesia’s biodiesel mandate, and potential India expansion through Adani-Wilmar’s proposed joint venture with Ruchi, as likely factors to drive the group’s near- and medium-term growth.
Although DBS projects sequential improvements in 2Q16 and 3Q16 earnings delivery for the group, Santoso says the research house is maintaining its conservative forecasts for Wilmar, as it expects processing margins to be moderate in 4Q16.
Santoso adds there is a downside risk to the research house’s CPO price forecasts in the case of Pertamina’s biodiesel offtake failing to live up to its expectations of 2.5 million kilolitres this year.
Wilmar International closed at $3.29 on Thursday.
Click Here To Register For Free Trial Services OR Give A Missed Call : +6531581402 Follow Us On Twitter : www.twitter.com/epicresearchsg Like Us On Facebook : www.facebook.com/EpicResearchSingapore Need Any Assistance Feel Free To Mail Us at : info@epicresearch.sg
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