Here’s why there’s still light at the end of the tunnel for Wilmar International

Raised CPO prices will be a boost.

While Wilmar International (Wilmar) seems to have scared off the market after the company cited tough operating conditions for 2Q16, analysts believe that Wilmar still has a lot to offer.

According to a report by RHB, Wilmar should be able to ride out this quarter thanks to increased crude palm oil (CPO) prices and improved profitability in the consumer products business.

Wilmar management expressed that the operating landscape for soybean crushing was impacted by excessive imports in China. This, together with the recent spike in international soybean prices due to bad weather conditions, is expected to hurt crushing margins in 2Q16.

However, RHB asserts that the situation should normalise in 3Q16, as China slashes soybean imports at the current elevated soybean prices. On a full-year basis, a strong growth in the consumer business is expected to cushion the the negative impact in soybean crushing.

In addition, Wilmar aims to achieve 10m tonne of sales volume in the consumer products business by 2020, implying a 14.5% CAGR in volumes over end-FY15 to end-FY20.

RHB believes this can be accomplished through developing new complementary products in the food or home-care space; partnerships or joint ventures (JV) to leverage on other recognised brands; selling existing products such as rice and flour into more markets; and setting up a JV for central kitchens to capitalise on the existing distribution and logistical prowess in China.

Moreover, RHB thinks that volumes in rice and flour have passed the breakeven point, and they are likely to deliver better margins going forward.