Following Wilmar&rsquo s record 3QFY2020 results announcement, analysts are keeping their positive stance on the stock.

 

The agribusiness group recorded net profit of US$536.6 million ($732.5 million) for the 3QFY2020 ended September, up 20% from the net profit of US$447.1 million the year before. Core net profit for the quarter stood at US$501.4 million up 19.6% y-o-y, making this the highest third quarter core results since the group&rsquo s listing.

 

Revenue for the period was 19.3% higher y-o-y ay US$13.3 billion.

The group attributed its strong results to better-performing core segments from the previous year in terms of both revenue and profit. The strong results also came on the back of strong demand for the group&rsquo s food products higher crushing activities amid the easing African swine fever situation in China and better performance in the plantation and sugar milling segment due to higher prices achieved during the quarter.

 

Furthermore, the group also announced a special dividend of approximately 15% of the total IPO proceeds of US$2.06 billion to be declared in Feb 2021 to commemorate the successful listing of Yihai Kerry Arawana (YKA), which analysts estimate could come up to be about 6 to 6.5 cents per share.

 

RHB Group Research is maintaining its &ldquo buy&rdquo recommendation on RHB with a higher target price of $5.85 from $5.60 previously, as the 3QFY2020 results have exceeded expectations.

 

&ldquo With the strong set of numbers and positive outlook for 4QFY2020, the group is on track to generate a 10-year record-high profit,&rdquo says analyst Juliana Cai.

Meanwhile, the outlook for the next six months remains optimistic, with all three core segments expected to do well &ndash the tropical oil segment is expected to be at the helm, driven by higher CPO prices and healthy processing margins in the near term.

 

&ldquo Management also allayed our concerns on crushing margins, as WIL is able to pass on higher costs to end-consumers. Barring any extreme weather conditions, the group expects crushing margins to remain satisfactory in the near term,&rdquo says Cai.

 

Additionally, higher sugar prices and a premium for white sugar also benefitted WIL&rsquo s sugar milling & refining business.

 

Following the listing of YKA, Wilmar plans to focus on growing its China market on the longer term by going more into downstream consumer staple products. While the group continues to ramp up rice and flour production, it has already started planting new seeds in the condiments and noodles segments for future growth.

Wilmar is also exploring the listing of its other businesses to unlock more value.

 

Sharing similar sentiments, DBS Group Research is reiterating its &ldquo buy&rdquo recommendation on Wilmar with a target price of $5.28.

 

In a Nov 2 report, analyst William Simadiputra says, &ldquo Wilmar' s operating profit margin (OPM) has been expanding in the last three years and is expected to remain firm from its growing exposure to higher-margin branded kitchen food segment. Wilmar is expected to post sublime FY2020 earnings performance mainly driven by YKA in China.&rdquo

 

With that, the analyst has raised FY2020 and FY2021 earnings estimates by 12% each, driven by higher top line and profitability performance. FY2020 earnings is expected to reach US$1.36 billion and further improve to US$1.38 billion in FY21.

 

On the outlook, Wilmar is expected to benefit from China&rsquo s improving economy and taming Covid-19 situation. Beyond China, the easing lockdown measures in some countries such as India and Indonesia also will help to boost its business in the region.

 

&ldquo Meanwhile, the current strong palm oil price trend will provide another leg of earnings growth for its tropical oil division. Wilmar has proven it can benefit from both upcycle and downcycle edible oil market trends to expand its tropical oil segment earnings,&rdquo notes Simadiputra.

 

Similarly, CGS-CIMB continues to rate Wilmar &ldquo add&rdquo with an unchanged target price of $5.54.

 

Analyst Ng Li Fang says, &ldquo We gathered that all core segments of the group did better y-o-y, both in terms of revenue and profit in 3QFY2020. The group saw strong demand for its food products and recorded higher crushing activities as African Swine Fever (ASF) eased in China. Both its plantation and sugar milling segments benefitted from higher selling prices achieved for CPO and sugar in 3QFY2020. The group also highlighted that it enjoyed robust tropical oil and sugar refining margins in 3QFY2020, which we suspect could be due to its timely purchase of raw materials.&rdquo

 

Ng also notes that Wilmar&rsquo s associates and joint ventures, particularly from India and Africa, also did well.

 

Overall, Wilmar expects its results for the rest of the year to be good.

The group expects to benefit from higher sales volumes in Asian countries where lockdown measures have eased, better sales volumes from China, thanks to a rebound in the economy, expectations that CPO prices will stay firm going into 2021, satisfactory processing margin for tropical oils and oilseeds crush margin and lastly, better sugar operations due to strong white sugar premium and recovering sugar prices.