Wednesday, 29 March 2017

Stock Market Today:Why UOB is upgrading Wilmar to hold

UOB KayHian is upgrading Wilmar to "hold" from "sell" with a $3.50 target price after its recent share price correction as core businesses are still operating as usual and the house expects better 2017 earnings on the back of steady growth from all three key divisions on higher sales volumes.

Our SOTP-based target price remains at $3.50. Entry price: $3.20, says UOB. As at 10.31am, shares of Wilmar are trading 6 cents higher at $3.58.

Wilmar share price has fallen 11.6% from a high of $3.98 on Jan 2 to $3.52 on Tuesday. The drop might be due to weakening commodity prices. Sugar prices dropped the most, followed by CPO spot prices and soybean prices which dropped 11.6% and 6.1% respectively in the same period.

In a Wednesday note, UOB says sugar prices were weighed down by ample supply but weaker demand while weakening CPO prices were mainly due to the market expecting a strong production recovery but demand growth is lagging.

The dip in soybean prices was largely due to better-than-expected production in South America and expected higher soybean planting in the US.

We think Wilmar's recent share price correction was driven by poor sentiment on weakening commodity prices. However, Wilmar's core businesses are still operating as usual and we expect all three key divisions to grow steadily in 2017, supported by higher sales volumes," says UOB.

However, UOB expects 1Q17 to be Wilmar's weakest quarter for the year due to weaker demand for consumer products post-Chinese New Year, lower soybean crushing margin due to slowdown in demand, weaker q-o-q FFB production due to seasonality and weaker contribution from the sugar division as sugar milling activity should only start contributing from 2H17 as the sugar cane crushing season in Australia only starts in 2H.

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