China Moves to Support Markets After Data Showing Economy Slowed

This follows the agribusiness group&rsquo s earnings report last week that showed net profit in Q3 had fallen

 

ANALYSTS cut their price targets for Wilmar International : F34 +1.29% on uncertainty in its China business, and after the company reported third-quarter earnings that showed net profit fell.

 

The agribusiness group on Wednesday (Oct 30) reported that its net profit fell by 19 per cent to US$254.4 million in Q3 from US$313.9 million in the corresponding period a year ago. There was an even sharper drop in core net profit of 35.7 per cent year on year to US$208.1 million from US$323.6 million.

 

This came despite increased sales volumes as the company saw margins tighten on lower contributions from its China business and sugar division. 

 

Maybank Securities in a Monday report said that it has lowered its price target for the stock to S$3.17 from S$3.25 while maintaining its &ldquo hold&rdquo call. 

 

Maybank analyst Thilan Wickramasinghe said: &ldquo Despite increases in volume across all business segments, tightening margins persist due to depressed commodity prices, weakness in China&rsquo s recovery and weak (performance from Wilmar&rsquo s) sugar (division).&rdquo  

 

Noting that the company will require a &ldquo clear, sustained recovery&rdquo in its China business, a turnaround remains &ldquo some way off in the near-to-medium term&rdquo , he noted. 

 

Wickramasinghe said that Maybank is lowering its earnings per share estimates for the financial years 2024 to 2026 by 1 per cent each to reflect lower prices.

 

Wilmar is expected to continue facing headwinds, as its third-quarter results signal that its tropical oils recovery remains &ldquo under pressure&rdquo , he added. 

 

Near-to-medium term visibility for Wilmar&rsquo s prospects is limited, but Wickramasinghe expects that a clearer picture of its China business&rsquo recovery trajectory will emerge after the US presidential election concludes &ndash particularly with regard to potential tariffs and trade fallouts. 

 

CGS International Securities trimmed its price target for Wilmar to S$3.47 from S$3.63 on account of its &ldquo subdued&rdquo profitability and as its performance for the first nine months of FY2024 &ldquo missed expectations&rdquo .  

 

&ldquo Our price target is lowered to S$3.47 after rolling forward our valuation to FY2026 forecasts,&rdquo the research house said. 

 

&ldquo We think Wilmar&rsquo s profitability bottomed out in Q3 of FY2024,&rdquo it added. 

 

CGS International analyst Tay Wee Kuang in a Monday research report said that he expects the company&rsquo s fourth-quarter profits to remain weaker on year because of a &ldquo high base effect from elevated sugar prices&rdquo in Q4 of 2023. 

 

&ldquo We reduce our FY2024 to FY2026 earnings per share forecasts by 6.8 to 9.9 per cent due to ongoing margin pressure,&rdquo Tay added. 

 

However, he expects the firm to clock higher profits in FY2025, as Indonesia&rsquo s biodiesel target is set to be favourable for the company. The country plans to raise mandatory palm oil-based biodiesel blending from the current 35 per cent to 40 per cent in January 2025 and 50 per cent in the early part of the year.

 

&ldquo Wilmar should benefit from the roll-out of the B40 biodiesel mandate in Indonesia given its position as the largest biodiesel producer by volume in Indonesia, as well as lower finance cost on interest-rate cuts,&rdquo he noted, referring to the 40 per cent blend.

 

A potential sale of its stake in Adani-Wilmar, its joint venture with India&rsquo s Adani Group, is expected to be completed by FY2024, and this may result in one-off gains for Wilmar, Tay said.