Wilmar's refining margins to struggle as Indonesia competition heats up

How badly will it be affected?

According to Nomura, Wilmar’s 1Q was mostly in line, with refining margins down y-y, positive crush margins, and single digit growth in volumes in most segments. 

Overall, the healthy y-y earnings growth is partly because of the low base of last year when crush margins were negative. 1Q forms ~23% of FY13F estimates (in line with historical estimates) but looks better considering sugar milling doesn’t contribute in 1H.

Here's more from Nomura:

Refining margins (up q-q), in our view, may struggle to maintain these levels long term as Indonesian competition comes online. Volumes should pick up because of new refineries coming online in Indonesia, which should further contribute in FY13.

But post that, we believe organic growth could be difficult. Crush margins, though positive, would struggle to go beyond mid double digits, in our view, as structurally China’s crush industry is still in bad shape.

CPO production was strong but lower prices hurt. Sugar refining margins picked up sharply as new capacities start contributing in Indonesia.