Wilmar International

[mrEngineer]

Utilization is not only impacted by supply but also demand. I doubt demand will halt based on the growth with China urbanization and increase in consumption and/or health awareness of palm or soybean oil. I was in Guangzhou last week and I had to wait at least 2 hours in order to get a seat in South Beauty.

[specuvestor]

Well, what should an investor look at? The present or the future?

Yes, the utilization is low, that's what make it a very profitable investment if the utilization improves, otherwise, why would any investor look at Wilmar?

The utilization can't be too low forever.

I don't see much improvement happening anytime soon. Over capacity in crushing can be very hard to eliminate and the process might take a while. Even with the poorly utilized crushing capacity and poor soy crush economics, I see decent value in Wilmar if the Indonesian government push for a better biodiesel mix pans out. At current levels, I think Wilmar is priced quite fairly even if the biodiesel regulations don't work out and soy crush margins don't improve by much.

There is a new tax rule last year that favors processed CPO export than just FFB. That's why a lot of Indo palyers are milling and processing themselves than send to Wilmar to mill and process. Can't remember the specifics of the rule

For FY10:
Total Profit $1644m
Palm & Laurics $587m
Oilseeds and grains $118m
Plantation and palm mills $636m

For FY11:
Total Profit $2079m
Palm & Laurics $586m
Oilseeds and grains $423m
Plantation and palm mills $734m

For FY12:
Total Profit $1655m
Palm & Laurics $771m
Oilseeds and grains $14m
Plantation and palm mills $411m

We can see that Plantation business is pretty steady and more a function of CPO (and "hedging") as discussed. Mills and Laurics will likely be affected by customers choosing to do inhouse and hence affecting utilisation. Oilseeds, mostly a function of previously Kuok Group's business in China, is mainly a function of China flexibility in retail pricing vis a viz inflation.

[Clement]

Well, what should an investor look at? The present or the future?

Yes, the utilization is low, that's what make it a very profitable investment if the utilization improves, otherwise, why would any investor look at Wilmar?

The utilization can't be too low forever.

I don't see much improvement happening anytime soon. Over capacity in crushing can be very hard to eliminate and the process might take a while. Even with the poorly utilized crushing capacity and poor soy crush economics, I see decent value in Wilmar if the Indonesian government push for a better biodiesel mix pans out. At current levels, I think Wilmar is priced quite fairly even if the biodiesel regulations don't work out and soy crush margins don't improve by much.

There is a new tax rule last year that favors processed CPO export than just FFB. That's why a lot of Indo palyers are milling and processing themselves than send to Wilmar to mill and process. Can't remember the specifics of the rule

For FY10:
Total Profit $1644m
Palm & Laurics $587m
Oilseeds and grains $118m
Plantation and palm mills $636m

For FY11:
Total Profit $2079m
Palm & Laurics $586m
Oilseeds and grains $423m
Plantation and palm mills $734m

For FY12:
Total Profit $1655m
Palm & Laurics $771m
Oilseeds and grains $14m
Plantation and palm mills $411m

We can see that Plantation business is pretty steady and more a function of CPO (and "hedging") as discussed. Mills and Laurics will likely be affected by customers choosing to do inhouse. Oilseeds, a function of previously Kuok's business in China, is mainly a function of China flexibility in retail pricing vis a viz inflation.

I think the ffb to cpo processing (milling) results are reported together with the plantation results, ~94% of the revenue is earned from inter company sources. The palm and laurics division reports cpo to refined products operations.

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To add, for those who are interested, here is more raw data for a detailed look at Wilmar that i've put together awhile ago.

[freedom]

If separating the non-operating profit and operating profit of plantation, the plantation segment is not exactly a big contributor of profit.

Eying the prize, not non-essential speculative part. That's for gamblers.

[robertlau]

Wilmar 3Q Net Profit Rises 2.5% to $416 Mln.
Rev and EPS also up.

Then price drop >2% today.

What is the deal?
Not meeting market expectation?

[Clement]

Wilmar 3Q Net Profit Rises 2.5% to $416 Mln.
Rev and EPS also up.

Then price drop >2% today.

What is the deal?
Not meeting market expectation?

From what i see, the profit has several one off components.
1)Gain on disposal on fortune gas US$24m
2)Crush spread improvement due to late soybean delivery from South America

Overall the results are mixed. With strong volume growth but declining spreads for Palm & Laurics, while sales volume actually declined qoq for the sugar processing & merchandising arm.

[specuvestor]

Well, what should an investor look at? The present or the future?

Yes, the utilization is low, that's what make it a very profitable investment if the utilization improves, otherwise, why would any investor look at Wilmar?

The utilization can't be too low forever.

I don't see much improvement happening anytime soon. Over capacity in crushing can be very hard to eliminate and the process might take a while. Even with the poorly utilized crushing capacity and poor soy crush economics, I see decent value in Wilmar if the Indonesian government push for a better biodiesel mix pans out. At current levels, I think Wilmar is priced quite fairly even if the biodiesel regulations don't work out and soy crush margins don't improve by much.

There is a new tax rule last year that favors processed CPO export than just FFB. That's why a lot of Indo palyers are milling and processing themselves than send to Wilmar to mill and process. Can't remember the specifics of the rule

For FY10:
Total Profit $1644m
Palm & Laurics $587m
Oilseeds and grains $118m
Plantation and palm mills $636m

For FY11:
Total Profit $2079m
Palm & Laurics $586m
Oilseeds and grains $423m
Plantation and palm mills $734m

For FY12:
Total Profit $1655m
Palm & Laurics $771m
Oilseeds and grains $14m
Plantation and palm mills $411m

We can see that Plantation business is pretty steady and more a function of CPO (and "hedging") as discussed. Mills and Laurics will likely be affected by customers choosing to do inhouse. Oilseeds, a function of previously Kuok's business in China, is mainly a function of China flexibility in retail pricing vis a viz inflation.

I think the ffb to cpo processing (milling) results are reported together with the plantation results, ~94% of the revenue is earned from inter company sources. The palm and laurics division reports cpo to refined products operations.

Yes milling and plantation are reported together, as per the breakdown I provided above.

My point is that Wilmar is the largest miller and more than 50% is done for 3rd party IIRC (NOT 94% intercompany) and many of these customers are now moving to doing inhouse. CPO mill production in 3Q continue to drop 8% YoY. It is interesting however that Palm and Laurics volume increased 4% YoY

Market may also be concerned that the 3Q results is buffered by Sugar mill crushing that has completed 80% vs 60% last year.

[Clement]

Well, what should an investor look at? The present or the future?

Yes, the utilization is low, that's what make it a very profitable investment if the utilization improves, otherwise, why would any investor look at Wilmar?

The utilization can't be too low forever.

I don't see much improvement happening anytime soon. Over capacity in crushing can be very hard to eliminate and the process might take a while. Even with the poorly utilized crushing capacity and poor soy crush economics, I see decent value in Wilmar if the Indonesian government push for a better biodiesel mix pans out. At current levels, I think Wilmar is priced quite fairly even if the biodiesel regulations don't work out and soy crush margins don't improve by much.

There is a new tax rule last year that favors processed CPO export than just FFB. That's why a lot of Indo palyers are milling and processing themselves than send to Wilmar to mill and process. Can't remember the specifics of the rule

For FY10:
Total Profit $1644m
Palm & Laurics $587m
Oilseeds and grains $118m
Plantation and palm mills $636m

For FY11:
Total Profit $2079m
Palm & Laurics $586m
Oilseeds and grains $423m
Plantation and palm mills $734m

For FY12:
Total Profit $1655m
Palm & Laurics $771m
Oilseeds and grains $14m
Plantation and palm mills $411m

We can see that Plantation business is pretty steady and more a function of CPO (and "hedging") as discussed. Mills and Laurics will likely be affected by customers choosing to do inhouse. Oilseeds, a function of previously Kuok's business in China, is mainly a function of China flexibility in retail pricing vis a viz inflation.

I think the ffb to cpo processing (milling) results are reported together with the plantation results, ~94% of the revenue is earned from inter company sources. The palm and laurics division reports cpo to refined products operations.

Yes milling and plantation are reported together, as per the breakdown I provided above.

My point is that Wilmar is the largest miller and more than 50% is done for 3rd party IIRC (NOT 94% intercompany) and many of these customers are now moving to doing inhouse. CPO mill production in 3Q continue to drop 8% YoY. It is interesting however that Palm and Laurics volume increased 4% YoY

Market may also be concerned that the 3Q results is buffered by Sugar mill crushing that has completed 80% vs 60% last year.

Hi Specuvestor,

If you look at the annual reports under segment reporting, it shows for Plantations and Milling revenue of USD1.728 billion of which USD1.658 billion are reported as inter-segment revenue for 2012. For 2011, the figures are USD1.76 billion out of USD1.843 billion.

If you meant that the group does not produce all of the FFB or CPO it consumes in it's downstream operations, yes that's true.

[specuvestor]

Yes quite a number of listed Indonesia plantation players had been using Wilmar as mill. What you are saying is the accounting treatment on how they charge the "value add". Just look at their FFB tonnage and their CPO tonnage vs the 20% yield. Hence margins and volume for milling should be coming off if what these other players are saying is true.

[Clement]

Yes quite a number of listed Indonesia plantation players had been using Wilmar as mill. What you are saying is the accounting treatment on how they charge the "value add". Just look at their FFB tonnage and their CPO tonnage vs the 20% yield. Hence margins and volume for milling should be coming off if what these other players are saying is true.

Hi specuvestor,

I see where you are coming from. I was confused as you mentioned the export tax earlier. The export tax difference is between refined palm oil products and cpo. FFB cannot really be exported as they need to be processed within 24 hours of harvesting.

Regardless, i agree that Wilmar will most likely be purchasing more CPO directly from planters instead of buying ffb and milling them.