Wilmar braces for weaker soymeal demand and lower Q4 profits: report

Buyers have stocked up soymeal as they prepare for a potential shortage.

Wilmar International could see most of its profits whither in fourth quarter 2018 even after a bountiful Q3 mostly due to lower sugar contribution and the absence of investment gains, UOB Kay Hian said in a report. The possibly dented Q4 performance will prevent the firm from getting a profits growth in 2018 that is higher than UOBKH’s forecast of 11%.

The analysis attributed the potential decline to buyers having stocked up soymeal in Q3 due to a potential shortage in Q4 when the bulk of soybean supply is coming from the US, and China is buying from them currently. The population of hogs has also fallen due to the Africa virus that has hit China’s swine industry.

Also read: How will Wilmar fare against hefty China soybean tariffs?

“We maintain sales volume for this division to grow at mid-single-digit QoQ but lower YoY with weaker margins as well,” said UOBKH analyst Leow Huey Chuen.

The sugar division, on the other hand, may see a large QoQ decline in sales volume for its milling operation. Leow explained, “The 2017 production has been fully sold and delivered in Q3 and Q4 sales volume would solely be from 2018 sugar production. Wilmar may use a similar strategy as in 2017, ie to commit the sales of sugar produce in the season to the next year.”

The sugar merchandising, refining, and consumer products segment could see higher sales volume but margins may not be good given low sugar prices, the analyst added.

UOBKH’s outlook on the others segment is bleak as well as gains from investment securities may not repeat in Q4. Notably, contributions in this segment plummeted 98% YoY due to the poor performance of its fertiliser business as well as lower investment income.

On the upside, the tropical oils division could perform well thanks to the oversupply of palm oil. It is also giving refiners better pricing power, Leow said.

“In a few regions in Malaysia and Indonesia, CPO producers are trying to sell more by giving a discount to market prices as they are running out of storage capacity. This is due to the high production since August in both the countries, relatively weak demand and logistics issues in Indonesia,” the analyst added.

Management has said that an initial public offering (IPO) in China is still likely for the group for the second half of 2018 even as the period approaches its ending.