Published August 16, 2008

Wilmar shares fall despite reporting stellar Q2 results

Cautious outlook, analyst downgrades could be sell factors

By EMILYN YAP
Email this article
Print article
Feedback

PALM oil giant Wilmar International's triple-digit growth in second-quarter earnings failed to win over the market yesterday, as its shares fell 24 cents or 5.7 per cent to reach an intra-day low of $3.96.

The counter ended trading at $3.99 - 21 cents or 5 per cent down - with 10.5 million shares changing hands.

The group's cautious business outlook and downward revisions by analysts could have contributed to the sell-off.

Wilmar said in its press release on Thursday that commodity prices, including those for palm oil, have been sliding since early last month. 'Unless the price of crude oil spikes up again or the weather in the US deteriorates, palm oil prices are likely to remain subdued,' it cautioned. 'This is due to ample supply from both Malaysia and Indonesia and moderating demand for palm oil from a slowing global economy.'

The group reported a 227 per cent surge in second-quarter net profit to US$331.7 million from US$101.5 million.

The 'subdued' view on palm oil prices received a fair bit of attention at Wilmar's results briefing yesterday. Asked to elaborate, group chairman and CEO Kuok Khoon Hong said that he believed that prices would continue shifting, but to a smaller extent than in the earlier part of the year.

'I don't see a big run-up to the old levels. If it goes up, it won't go up sharply, but it might still come down a bit,' he said.

DBS Vickers yesterday downgraded its 'buy' call on the counter to 'hold', with a price target of $4.50. Credit Suisse also cut its target price for Wilmar from $5.40 to $4.80.

Wilmar said in its Thursday announcement that while the overall operating environment will be more challenging, the situation will offer new growth opportunities.

'We have the resources and financial strength to seize attractive new opportunities while continuing to pursue existing strategies,' said Mr Kuok.

Shedding more light on growth plans, Mr Kuok said yesterday that 'we're building a new refinery in Germany . . . also planning a new one in Spain. In Russia, we're going into crushing and refining . . . also planning a few more plants in some still confidential locations.'

Wilmar remains optimistic about achieving a satisfactory performance for the year. According to its release, 'while lower edible oil prices will affect plantation earnings, downstream businesses will benefit'. Also, 'the group's businesses in China are expected to perform well'.

Another commodity play, Noble Group, also saw a dive in its share price yesterday - dropping 5.3 per cent or 11 cents to close at $1.97.