What Wilmar's 3Q12 results really mean

Positive crush margin was the biggest swing factor.

According to Nomura, Wilmar reported a strong turnaround in Q3, beating Street consensus forecasts by ~10% (and our estimates by ~20%); mostly led by positive crush margins.

Here's more from Nomura:

Refining margins were decent, sugar reported an expected Q3 contribution and volumes were weak overall (flat in refining, down 7% in oilseeds and up 4% in consumer pack).

Trading at ~12xCY13 P/E, we expect stock reaction to be positive, as there is ~7-8% upside risk to this year’s consensus FY earnings estimate, in our view.

Key commentary to look forward to include the company’s outlook on crush (whether there has been any structural improvement), any feedback on possible M&A activity and updates on sugar plantations, if any.

Above or below consensus estimates? Above estimates 3Q adjusted earnings of US$388mn was higher compared to Street consensus of US$370mn.

Likely stock reaction – Positive
Although there was speculation in the market that Wilmar’s crush margins may bounce back, the stock had not reacted very positively before the earnings announcement. Thus, we do expect the stock to react quite positively to these results.

What does the result mean?

Crush margins finally came in positively, at ~US$11/MT. This was the biggest swing factor as we were anticipating a small negative crush margins.
Refining margins seem to have stabilized at ~US$30/MT. Lower CPO prices impacted plantation earnings ,while both sugar milling/refining reported big jumps in profitability.
Palm plantation PBT declined by 11% y-y due to lower FFB yield (down 6% y-y, because of dry weather in much of Sabah, Kalimantan and Sumatra), as well as higher unit production cost owing to higher fertilizer cost.
Net gearing at the end of 3Q12 increased to 0.92x from 0.79x at the end of FY11.
Working capital days for 9M12 remained fairly stable at 83 days vs 81 days for 9M11.
PBT from the Others segment in 3Q12 was US$22.4mn compared to a loss of US$62.5mn in 3Q11, mainly due to gains in investment securities.

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