Wilmar’s earnings trimmed to 22% in 2023 after ‘disappointing’ H1 earnings

Earnings will grow by 22%, 12%, and 5% for 2023 to 2025, analysts estimate.

Wilmar International’s earnings for the whole year have been trimmed after their “disappointing” first half results.

UOB Kay Hian has revised Wilmar’s earnings down by 22%, 12% and 5% for 2023, 2024, and 2025. This comes after Wilmar International and Yihai Kerry Arawana’s (YKA) weak margins in the first half 2023.

“The key adjustments are trimming margins for food products by 60% and lowering sales volumes for both food products and feed & industrial products. Although we are expecting earnings to recover in H2 2023, the recovery will not be enough to compensate for the weak H1 2023 performance,” said UOB Kay Hian analysts Leow Huey Chuen and Jacquelyn Yow Hui Li. 

“After our earnings adjustment, H1 2023 accounts for about 40% of our full-year forecast, which is norm as there is usually a higher contribution in H2 due to festive demand and the peak of sugar milling,” Leow and Li wrote.

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Recovering sales volumes
Despite the trimmed earnings, there are pockets of hope on the horizon for Wilmar International and YKA. Sales volumes of food products are reportedly on the rise and should see larger contributions from consumer packs after two quarters of destocking.

YKA flour business should improve in the last six months of 2023, in line with hte rising prices of flour and its by-products. Management has also mentioned that feedstock prices have normalised, and are reflective of the current market price level.

Demand for soybean, and prices of wheat and corn meal prices, are all expected to rise notably in China and the US.

In Indonesia, palm oil mid-to-downstream margins have improved with the recovery of refined product prices. However, the oleochemical division remains challenging and gives only relatively small contributions along the palm value chain.

The plantation & sugar milling division will also see stronger contributions, UOB Kay Hian said, with the upcoming peak sugar milling season, higher sugar prices, stabilised fertiliser selling prices, and plantations’ lower cost and higher sales volumes.

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YKA faces a bumpy recovery
YKA’s recovery may take place not until 2024 amidst ongoing recovery, UOB Kay Hian’s Leow and Li said.

YKA saw sales volumes in all its segments have positive growth, except for consumer packs. Recovery in consumer spending in China following the reopening in November drove sales.

“However, the good sales is not translating into better margins because: a) the better sales volume growth comes mainly from lower-margin segments, b) consumer spending has become more cautious and selective, thus increasing the need for more promotions in order to retain market share, and c) YKA may need to keep higher stocks for some of its feedstocks due to its large processing capacity,” Leow and Li wrote.