Wilmar to suffer from poor crush margins in 3Q

Good thing plantation, refining and sugar divisions are expected to do better in 2H12.

Here's more from CIMB:

During its 2Q12 results briefing, Wilmar continued to guide for weak oilseed & grain crushing margins for 3Q due to  overcapacity. It said that margins have improved from 2Q’s but remain in negative territory. It is positive on its palm & laurics division as it will able to capitalise on its larger refining capacity in Indonesia and benefit from the country’s favourable export tax. On top of that, higher seasonal production will boost 2H sales volumes.

The plantation segment could do better as well due to stronger FFB production while the consumer products division may benefit from a slight qoq dip in feedstock costs. The sugar division is expected to deliver better earnings in 2H when most of the cane crushing activities will be captured. Also, the group has sold forward most of its sugar production.

What We Think
The guidance of poor crush margins in 3Q is disappointing even though we got the impression that losses have narrowed qoq. The weak crush margin for oilseeds is mitigated by our expectations of higher seasonal output and better sugar earnings in 2H.

Management also highlighted that the replacement costs for most of its processing  facilities are above the book value. It remains confident about its strong business model and long-term business prospects and will consider buying back its shares if its share price slides further.