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SINGAPORE (Nov. 28): Wilmar, the largest palm oil processor in the world, has appeared in the "danger zone" of Exotix Capital's cash flow stress test.
This comes after the research house tested the cash flow of 42 consumer firms on their vulnerability to rising interest rates and depreciation.
Currently, palm oil and soybeans face an oversupply. This follows the imposition of tariffs on US soybean imports by China as part of the trade war while palm oil is facing an overabundance.
The prices of crude palm oil (CPO) fell by almost 20% in 2018 to reach their lowest level in three years.
The last time palm oil fell by this magnitude over a six-month period was in 2008, when Wilmar recorded a 23% drop in pre-tax earnings for 4Q08.
In his report Is there a tick of bomb debt?According to Nirgunan Tiruchelvam, an analyst at Exotix, the specter of stock depreciation is again on the horizon.
In addition, the group reported net interest expense of $ 187 million on net debt of $ 20.5 billion for fiscal 2017.
Tiruchelvam estimates that the potential cancellation of the US dollar carry could reduce the group's net profit for FY 19 by about 20%. A 1% reduction in net income could reduce its profits by one-third.
At the same time, Wilmar's US $ 6.5 billion capital for the period from 12 to 17 was the tropical oil segment, which includes the processing of palm oil and soybeans. .
But in terms of capex per tonne of processing assets, they exceed the industry average of $ 160 per tonne and have exceeded the ROI for the past three years.
This could lead to a slowdown in the return on investment during the 18-19 biennium due to the supply of excess processing.
In addition, the intense expansion of refining capabilities of palm oil and soybean oil has weakened the refining margins of the industry.
Wilmar saw its pre-tax treatment margins in the palm and laurel sector drop to 33.7 USD / T for FY 2016, compared to 33.4 USD / MT in FY 2016. Other actors such as Mewah, Indofood Agri and China Agri have also reported such low margins due to their overabundance.
In a report released on Tuesday, Exotix issued a sales recommendation on Wilmar with a target price of $ 2.29.
"At approximately 14x EV / 2018E EBITDA, Wilmar is trading at a 36% premium to the industry average, which we believe is unjustified given its low yields and poor earnings growth. Says Tiruchelvam.
At 12:53, Wilmar's shares trade at $ 3.16, which is 10 times the earnings of 2018F.
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