Wilmar profits plunged by a staggering 70.2%

Here's how tough China environment badly hurt Wilmar.

Wilmar International Limited (WIL) reported a very disappointing set of 2Q12 results. Although revenue grew by 4.3% YoY to US$11,019.7m, driven by volume growth in its Palm & Laurics, Consumer Products and Sugar, reported net profit fell by a staggering 70.2% YoY to US$117.1m.

WIL cites losses in Oilseeds & Grains and lower profits from Plantations & Palm Oil Mill; Sugar also posted higher losses while associates recorded lower contributions.

Excluding non-operating items, core net profit declined 55% YoY to US$172.3m.

For 1H12, revenue rose 6.9% to US$21,490.7m, while core net profit fell 52% to US$378.0m, or 22% of
our full-year forecast. 

Near-term environment “challenging”
Management expects the near-term operating environment to remain “challenging” in China, due to excess capacity in oilseeds crushing. In addition, WIL also sees adverse impact from the weakening RMB
against the USD; and it has taken steps to hedge its naturally long RMB position and also reduce any potential forex exposure.

Meanwhile, OCBC Investment Research said that its Consumer Products business could also see margin
squeeze due to rising input prices (especially from soy beans), while ability to raise selling prices may need approval from the Chinese government.

Management maintains that its long-term prospects remain positive, citing its sound business model. WIL adds it is well-positioned to capture growth in demand for agricultural commodities, especially in
Asia and Africa. However, to reflect the dismal 1H12 performance and still-tough operating environment, OCBC pared its FY12 earnings forecast by 30% (FY13 by 23%).