Stable CPO price outlook. Management opined that CPO price will stable at current level for 2009, even if the price correction to come the downside would be mitigated by the resilient demand from China. CPO price was closed at RM1,990/tonne for 3-month future contract and spot price on 26 Mar 09 was at RM2,101.50/tonne. This is in line with our house view on CPO price trading band of RM1,750-RM2,100/tonne for 2009 with an average of RM1,800/tonne.
Sales in China still good. Management indicated that the sales of the consumer packs do not show any sign of slowdown on cooking oil consumption. Wilmar has a 50% market share of China's branded cooking oil market. This would be the key factor to support CPO price. China consumed about 5.6m tonnes of palm oil in Oct-Sep 07/08 or 13.1% of global palm oil production.
Growth still with emerging markets. Management reiterates the growth for Wilmar still coming from China and India, i.e. the two largest edible oils markets in the world. The bottom line contribution to come from two key areas:
a) Volume growth supported by capacity expansion and gain in market share.
b) Margin improvement from better efficiency. The efficiency improvement come from internal control and also the improvement of China and India public infrastructure, i.e. better highways and rail connectivity.
Trading profit in the range of 5-20%. With regards to fund managers' concern on Wilmar's trading profit, management highlighted that at least 80% of Wilmar's net profit is deriving from its day to day operation. The trading profit make up by 5-20% and this is contributed by (1) timing of buying and selling, (2) extra profit deriving from maximizing shipping load from each shipment, and (3) taking an arbitrage position for locked in contracts.
The stock is now trading at FY09F and FY10F PE of 12x and 11x, respectively, below other major plantation players of 15x and 12x.
Sponsored Links
No comments:
Post a Comment