3 highlights from Wilmar’s Q1 2020 earnings

Here are three key takeaways for traders and shareholders from Singapore food manufacturing giant Wilmar International’s latest financial update.

Singapore-headquartered food processing conglomerate Wilmar International released its first quarter financial results for 2020 on Monday 11 May 2020.

Here are three key points that we took away from the company’s latest financial update.

1. Wilmar’s share price soared nearly 10% post-earnings

The day after Wilmar released its earnings (Tuesday 12 May), share price of the world’s largest edible oil refiner rallied as much as 9.66% to hit a two-month high of S$3.93 per share at 16:00 SGT.

The company also rose to become one of the top ten most popular equity counters on IG’s trading platform on Tuesday.

Wilmar’s shares currently have an average 12-month target price of S$4.22 per share, based on ratings from four analysts provided in the last two months.

Share price is down 7.9% year-to-date, with a peak of S$4.38 achieved on 14 January 2020 – two weeks prior to the coronavirus outbreak.

The Wilmar stock has a price-to-earnings ratio of 10.25 as of 11 May, below its historic average of 13.53. This is alongside a current dividend yield of 2.88% (historic average dividend yield: 0.79%).

Finally, market capitalisation currently stands at S$24.24 billion.

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2. Wilmar Q2 guidance: cautiously optimistic

The group provided a largely optimistic business and operations guidance for the upcoming financial quarters in this latest update.

Firstly, it expects the consumer products business to continue its strong growth in the second quarter, as Covid-19 restrictions and guidelines remain in place. In this past quarter, sales volume for consumer products grew by 34.8%.

Next, with the easing of lockdown measures globally, Wilmar expects its Hotel/Restaurant/Catering (HORECA) businesses to begin recovering from the second quarter of 2020.

Changing gears, the group noted that livestock feed demand should improve with the recovery of economic activities and increase in pig production in China.

The palm plantation division - one of Wilmar's largest business pillars - will likely be affected by lower palm oil prices caused by the ongoing oil price volatility. Downstream operations, however, are expected to continue doing well, it added.

Meanwhile, sugar refining operations should also perform well in the coming quarters due to the improvement in the premium for white sugar, with sugar milling expected to be impacted by lower sugar prices.

‘Despite the challenging operating environment due to Covid-19, if China’s economy recovers as expected, we are cautiously optimistic that our second quarter operations will not be significantly impacted,’ the group stated.

Wilmar also revealed that the planned China initial public offering of its Chinese subsidiary Yihai Kerry is still on track and is expected to be approved in the second half of the year.

‘We would like to emphasise that as work on the proposed listing is still in progress, shareholders are advised to exercise caution in trading their shares in the company,’ it clarified.

‘There is no certainty or assurance as at the date of this announcement that the listing proposal will be carried out.’

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3. Net profit decreased 12.7% year-on-year in Q1

The group’s core net profit improved by 22.5% year-on-year to US$306.5 million in the first quarter of 2020 (compared to US$250.3 million in Q1 of 2019), which it attributed strong performances from consumer products, especially in China, and tropical oils downstream operations.

This was partially offset by lower demand from the HORECA businesses, which was negatively impacted by lockdowns in all of Wilmar’s major markets.

Net profit was 12.7% lower at US$224.3 million in Q1 2020 (versus Q1 2019’s US$257.0 million), as ‘weak equity markets resulted in mark-to-market losses on the group’s investment securities’, the group said.

Demand for consumer products, as mentioned earlier, continued to grow amidst the Covid-19 pandemic, particularly as household consumption increased due to the implementation of movement restriction measures globally.

Subsequently, sales volume for consumer products grew by 34.8% to 2.9 million mega tonne in Q1 2020, mainly from increased demand for consumer staples such as rice, flour and cooking oil.

However, Wilmar experienced a 20.0% reduction in demand for its medium pack and bulk products, which are mainly catered to the HORECA and food processing industries, as people were forced to stay home.

Shareholders’ funds reduced marginally by 1.4% to US$16.52 billion mainly due to balance sheet translation losses caused by the appreciation of the US Dollar in this quarter.

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