Why did Wilmar rally 40% despite crude palm oil price plunge?
With equity analysts estimating that Wilmar’s Q2 net profit could jump by 48%, will share price keep rising in the coming months?
Palm oil producer Wilmar International (SGX: F34) is scheduled to release its second quarter results for financial year 2020 (FY2020) after trading hours on Tuesday 11 August 2020.
Below, we highlight three areas that investors should be aware of ahead of the earnings report.
Wilmar stock has climbed 43% since May 2020
Wilmar shares have steadily climbed in the last two months, with price increasing some 42.5% since the start of May 2020.
The strong performance has largely come on the back of positive sentiment over the Shenzhen Stock Exchange listing of its China operation Yihai Kerry, according to DBS analyst William Simadiputra. Meanwhile, he noted that the palm oil business remains muted.
Market anticipation regarding the conglomerate’s Q2 FY2020 earnings has also helped to drive share price up 11% the last two weeks alone.
The group’s shares closed at S$4.82 each on Friday 07 August 2020 on the IG platform. This equates to a price-to-earnings ratio of 14.64 for the stock, which is above its five-year average of 13.52.
IG’s market analysis shows that ‘sells’ form 51% of all trades on the Wilmar International counter this week.
Additionally, 58% of client accounts currently have opened ‘buy’ positions on the stock, which indicates that there is a heavier expectation for Wilmar’s share price to rise in the immediate term.
Analysts rate Wilmar a ‘buy’ at price target of S$4.60
The Wilmar stock currently has an average rating of ‘buy’ (based on a Refinitiv survey of 15 brokers), and a consensus target price of S$4.60 per share from six analysts.
DBS’ Simadiputra gave the stock a 12-month price target of S$4.60 on a ‘buy’ call. This represents an upside of over 27% from the last traded price.
His higher price target is predicated on the notion that exports are starting to recover, which has allowed June 2020’s crude palm oil output to increase 24% year-on-year and 14% over May 2020 to 1.89 million metric tonnes.
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Other positive factors cited by Simadiputra include the stabilisation of crude palm oil prices at around 2,400 Malaysian ringgit to 2,450 ringgit – up May 2020 lows of 2,210 ringgit.
Nevertheless, downsides are still present in the form of weaker demand caused by a resurgent Covid-19 pandemic. As such, he noted that the market is waiting for better inventory and output data in August 2020 and the second half of the year.
Meanwhile, RHB’s Juliana Cai raised her target price on Wilmar to S$4.87 per share (up from S$4.83) on a ‘buy’ recommendation.
Cai’s optimistic price revision is based on a potential higher initial public offering (IPO) valuation of Yihai Kerry, as well as a likely hastened IPO audit and approval process.
‘We believe the IPO would draw substantial interests due to its large capitalisation, aside from its strong household name in China’s consumer packed edible products,’ she added.
Wilmar’s Q2 net profit expected to burgeon by 48%
Analysts polled by Refinitiv are expecting for Wilmar’s Q2 FY2020 net profit to increase an estimated 48.3% year-on-year to S$223.8 million, with earnings per share also burgeoning 46% to S$0.035 from S$0.024 posted in the same period a year ago.
Despite an expectation for higher earnings, analysts predict that interim dividends per share (DPS) in Q2 2020 will come in S$0.015, 32% lower than Q2 2019’s DPS sum of S$0.022.
For existing shareholders and prospective investors, it could be worth noting that Wilmar’s net profit missed analyst estimates in two of the last four reporting quarters.
The food producer posted a Q1 2020 net profit of S$224.3 million, below industry projections of S$306.5 million.
However, across the full financial year of 2019, net profit at S$1.29 billion beat market expectations of S$1.26 billion slightly by 3%.
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