Palm oil woes, lower sugar prices weigh on Wilmar Int’l in 2024: analysts

Share price will get a boost should Wilmar be definitively cleared from the China palm oil fraud.

Despite its “above expectations” earnings performance in the latter half of 2023, Wilmar International is expected to be weighed by challenging operation conditions in China and allegations of its association with the China palm oil fraud.

Core net profit for the last six months of 2023 was US$748m, which whilst 41% lower than the same period in 2022 was above expectations, according to UOB Kay Hian. A stronger operating margin was registered especially from its China operations and thanks to good sugar pricing. 

But Wilmar won’t enjoy the same advantage in 2024, with its sugar milling margins expected to be affected by lower sugar prices. Tropical oil margins are also expected to remain depressed.

Its China subsidiary, Yihai Kerry Arawana (YKA), is expected to see challenging operating conditions.

YKA– which contributes 60% to 70% of Wilmar’s net profit– has also been embroiled in the recent China palm oil fraud, which reportedly led to the loss of an estimated US$725m for a state-owned company. YKA has denied the allegations in a mid-January stock filing.

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“If Wilmar is definitively cleared from any association with the recent China palm oil fraud, we anticipate a favorable trajectory for the company's share price. Such a resolution would likely mitigate apprehensions, contributing to a restoration of investor confidence in the company's corporate governance,” UOB Kay Hian analysts Leow Huey Chuen and Jacquelyn Yow Hui Li said in a short report on Wilmar International.

In 2024, Leow and Li expect Wilmar to continue improving efficiencies of its operations, reducing capital expenditure and extracting benefits from the past expansion especially those that started operations in the last few years.

The analysts expect earnings to be US$1.56b in 2024 and US$1.95b in 2025.