PETALING JAYA: Wilmar International Ltd’s first-quarter results for the financial year 2022 (1Q22) scheduled for release on April 29 is expected to be largely contributed by its palm-related operations, says UOB Kay Hian (UOBKH) Research.
Wilmar, which is Asia’s leading agribusiness group, is an 18.6% associate company of PPB Group Bhd.
Over the years, Wilmar has been a significant contributor to PPB Group’s earnings.
UOBKH Research in its latest preview on Wilmar said, “There is a high possibility that the group’s 1Q22 core net profit will largely be contributed by its upstream earnings boosted by the strong crude palm oil (CPO) average selling price.”
However, the sales volume may be lower year-on-year (y-o-y) due to lower production and also trade disruption from domestic market obligations in Indonesia in February and early March this year, added the research house.
For the 1Q22 results, UOBKH Research expects Wilmar’s core net profit to be within the range of US$360mil (RM1.54bil) to US$380mil (RM1.63bil).
This is lower than the US$424mil (RM1.81bil) recorded in 1Q21 and US$534mil (RM2.3bil) in 4Q21.
Among the key factors leading to a lower y-o-y profit include a poorer performance from its Yihai Kerry Arawana business and higher effective tax rate.
The research house also described 1Q this year as “disruptive”, which saw distorted trade flow and price.
It added that “1Q22 is a tough quarter to do an earnings estimate, as it was an eventful quarter with most agri-commodity prices surging to new or almost new highs when Russia started its attack on Ukraine on Feb 24”.
The flip-flopping policies by the Indonesian government on domestic palm oil obligations and exports also disrupted the trade flow and distorted the palm oil market pricing between Indonesia and Malaysia, it said.
Furthermore, China’s zero-Covid tolerance policies led to the lockdown of two major cities, Shenzhen and Shanghai, which are relatively big consumer markets. This will also have an impact on Wilmar’s sales in China, said the research house.
Based on Wilmar’s last three financial years, UOBKH Research said the first-half core profit contribution ranged from 34% to 43% of the full-year core profit.
“Therefore, 1Q is usually better than 2Q due to the festive demand. To recap, in 1Q21, there were two one-off items that had boosted earnings, such as the reversal of hedging losses and higher effective tax rate,” added the research house.
UOBKH Research has maintained a “buy” call on Wilmar with a target price of US$5.50 (RM23.50).
PPB Group chairman Tan Sri Oh Siew Nam in the group’s latest 2021 annual report said it expects that PPB Group’s financial performance (in 2022) will be substantially dependent on contributions from Wilmar.