Why Singapore's agribusiness players must brace for falling trading margins

Catalyst is still a quarter away.

According to Nomura, it expects this quarter to see recovery from a low base of 2012 Q1CY, especially for Wilmar and Olam. 

Nomura noted that overall, it still expects Agri trading margins to remain weak. The stocks, trading at ~10-13x CY13F and ~8-10x CY14F EPS, continue to look good on risk-reward, but a catalyst (strong earnings rebound) could still be at least a quarter away.

Here's more:

For Wilmar, we expect a decline in palm refining margins as high Indonesian margins normalize. Also, we don't expect any recovery in crush margins.

Refining volumes should increase, in our view, as the new capacity in Indonesia should contribute for the full quarter. We believe the key will be plantation margins, as average CPO prices in Q1 were much lower than those last year. We believe sugar should continue to be loss making in 1HCY13.

For Olam, volume should continue to jump, in our view, led by food staples (grain trading). We do expect an increase in industrial margins from a low base seen in 1QCY12.

For Noble, we expect earnings to decline as energy and Agri margins should moderate from Q1CY12 levels, in our view.