See why Wilmar raised dividends despite flat earnings in FY13

37% payout ratio is highest ever.

Wilmar International's earnings in 2013 may not have been overly spectacular, but its dividend has been raising a lot of eyebrows after rising 60% yoy to a total full-year dividend of $0.081, resulting in the company's highest payout ratio of 60%, according to Barclays Research.

The research firm attributed this to a strong cash flow, and expects the higher dividend to help re-rate the stock to historical multiples.

Here's the full analysis from Barclays:

Full-year EPS of USc20.6 was broadly in line with our estimate of USc21.1, although 4Q net income fell marginally short of our expectations. A c60% y/y increase in dividend despite flat earnings is the key highlight of the year 2013, in our view. A full-year dividend of USc0.08 is one of the highest dividends announced by Wilmar and is equal to its 2009 dividend. Strong cash flow has resulted in net debt being marginally lower than our estimates and the company continues to maintain strong liquidity on its balance sheet. Among operational highlights, the oilseeds and consumer product division recovered strongly in 4Q but this was offset by a subdued sugar business. We believe a reasonable set of numbers and higher dividend should help the stock re-rate towards its historical multiples of 15x P/E, narrowing the current discount of c25%. Maintain OW.

Full-year headline numbers in line although 4Q was lower: Net income at US$1.32 billion was broadly in line with our estimates of US$1.35 billion. Net income in 4Q however lagged our (and consensus) estimates by 8-10%.

Dividend up 60% y/y despite flat earnings: Wilmar announced a final dividend of US$0.055, which together with an interim dividend of US$0.025 takes the full-year 2013 dividend to US$0.081. This implies a payout ratio of 37%, which is the company's highest ever and almost 50% higher than its seven-year average payout ratio of c25%.

Sugar Business the key driver of the miss in 4Q: The Sugar business generated PBT of US$19 million in 4Q, while our estimates were for US$165 million of PBT as 4Q is typically a strong season for cane-crushing. Weakness in Sugar was offset by record PBT in oilseed and the consumer product businesses, which together made a PBT of US$190 million vs our estimates of US$98 million in 4Q'13.

Positive read-across for NOBL: Exposure to Soybean and sugar are the overlapping businesses between Wilmar and Noble. Strong recovery in soybean crushing bodes well for Noble group's profitability in the agriculture business. Wilmar has the majority of its sugar business in Australia where adverse weather in 4Q has kept utilizations lower. However, Noble's sugar business is mainly in Brazil, where mill utilizations were steady in 4Q coupled with rising sugar and ethanol prices (both up 6% q/q and 3% q/q respectively), with the additional tailwind of a weakening Brazilian real.