Wilmar’s wilting profits may flourish back to life in FY16: report

The China oilseeds market has improved dramatically.

It’s high time investors took another look at Wilmar International (Wilmar), as changing market tides and Wilmar’s underappreciated distribution capability signal strong margins for the company in FY16.

According to a report by RHB, the oilseeds crushing market has displayed structural improvements. More than three years of oilseed price disruptions have ended thanks to tightened banking regulations eradicating shady commodity financing deals in China. Currently, overcapacity has become a smaller issue on back of improving utilisation rate.

In addition, Wilmar has the ability to tap on Chinese consumers’ desire for foreign goods. The company’s Arawana brand, bolstered by its “Singapore branding”, is currently the leading edible oil brand in China.

In line with this, RHB anticipates higher margins from Wilmar’s consumer pack division as its rice and flour, marketed under the same brand, generate improved profitability. Further, the acquisition of Goodman Fielder would provide it with a new range of products to leverage on the climbing Western influence on Chinese consumption habits.

Moreover, RHB believes that the market is overlooking Wilmar’s distributing prowess. Its network covers more than 50 countries including emerging markets like Africa, China, and India.

“We believe the value of the distribution chain can be further harnessed by injecting complementary products into it. Increased partnerships and joint ventures (JVs) would allow Wilmar to monetise its extensive distribution efficiently,” RHB notes.

Furthermore, Wilmar’s share price has rallied recently thanks to raised CPO prices, which are seen to stay robust till 1H17. This, with increased biodiesel mandates in Malaysia and Indonesia, could boost tropical oils’ margins. Additionally, El Nino has led to a robust supply of soybeans this year.

“We expect Wilmar’s oilseeds business to deliver strong margins in FY16F followed by lower but more stable margins in subsequent years,” states RHB.