BUY S$5.85 STI : 3,177.09
Price Target : 12 months S$ 6.25
Bloomberg yesterday reported that Wilmar was raising its cooking oil prices in China by an average of 5%. This was confirmed by the company which had informed their dealers yesterday of the c.5% price (average) increase across their range of cooking oil products and that the price increase is effective from yesterday.
In July 2011, we estimated that the removal of the price cap were to restore Wilmar's Consumer segment margin back to c.US$40/MT (i.e. to levels before price controls were imposed in Nov 2010, vis-a-vis US$33 in 1Q11), Wilmar's FY11F and FY12F net profit would increase by 1.1% and 2.3%, respectively.
However, raw material prices have since increased, and in our view a 5% increase this time may no longer restore its margin back to US$40/MT. Therefore, assuming that net ASP is the same as the raw material cost, a 5% increase would raise Wilmar's FY11F and FY12F net profit by 0.7% and 1.1%, respectively. In our estimates, Wilmar's Consumer segment contributes approximately 31% and 6% of Wilmar's FY11F Revenue and EBIT, respectively. Hence, while we see this development as positive for Wilmar, the impact is insignificant, in our estimation.
Wilmar will announce its 2Q11 results on Friday, 12 Aug11 and we will be reviewing our numbers then. For now, our Buy rating and S$6.25 TP are unchanged.
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