Broker Name: CGS International
Date of Report: April 21, 2025
Wilmar International Downgraded to Hold Amid Indonesian Uncertainty
Summary
- CGS International has downgraded Wilmar International (WIL) from “Add” to “Hold,” citing increased uncertainty in the Indonesian market.
- Despite an expected 18% year-over-year earnings growth in FY25F, the downgrade reflects concerns over potential land confiscation and ongoing legal investigations in Indonesia.
- The target price has been lowered to S\$3.15 from S\$3.47, based on a reduced P/E ratio of 10x FY26F earnings.
- Analyst Jacquelyn Yow is transferring coverage in this note. [[1]]
1Q25 Results Preview: Expected Net Profit Improvement
- Wilmar is expected to report a net profit ranging from US\$360m to US\$380m for 1Q25F. [[1]]
- This represents an improvement both quarter-over-quarter and year-over-year (4Q24: US\$355m; 1Q24: US\$328m). [[1]]
- The growth is primarily attributed to improved soybean crushing margins and better palm oil refining margins, supported by lower feedstock costs. [[1]]
- However, this was partially offset by lower contributions from the food products segment due to muted sales volume and higher promotional expenses. [[1]]
Key Growth Drivers for 1Q25
- Higher contribution from the feed and industrial segments, driven by: [[2]]
- Improved soybean crushing margins due to competitive feedstock pricing and a positive soybean crushing environment in China. [[2]]
- Positive shift in China’s soybean crushing margin, averaging Rmb404/tonne in 1Q25 compared to negative margins in previous quarters. [[2]]
- Robust soybean crushing margins in China, supported by delayed soybean harvests in Brazil and limited domestic soybean oil supply. [[2]]
- Improved palm oil refining margins due to lower feedstock prices, with CPO prices slightly down from RM4,840/tonne in 4Q24 to RM4,713/tonne in 1Q25. [[3]]
Uncertainties in Indonesia: Potential Land Loss and Legal Issues
- The Indonesian government’s plan to confiscate over 1m hectares of allegedly illegal private oil palm plantations poses a risk to Wilmar’s land holdings (150k ha in Indonesia). [[1]]
- A 5% loss of Wilmar’s land in Indonesia could result in an estimated 1.5% decline in net profit. [[1]]
- A recent bribery investigation linked to a 2022 palm oil export corruption case in Indonesia, where Wilmar was previously a defendant, now has a Wilmar legal officer named as a suspect. [[1]]
- This introduces uncertainty for Wilmar, although the investigation is ongoing. [[1]]
Resilient Feed and Industrial Segment Margins
- Wilmar’s soybean crushing margin is expected to remain relatively unaffected in 2025F. [[1]]
- The company has secured most of its soybean supply from Brazil for the year. [[1]]
Recommendation and Target Price
- Downgraded to Hold (previously ADD). [[1]]
- Target price: S\$3.15 (previous: S\$3.47). [[1]]
- The target price is pegged to 10x FY26F P/E (-0.5 s.d. from its 5-year historical average) vs. 11x previously. [[1]]
- This accounts for increased uncertainty in the Indonesia market. [[1]]
Upside and Downside Risks
- Upside risks: Stronger-than-expected consumption in China supporting better profitability of its food products segment. [[1]]
- Downside risks: Unfavorable court ruling from litigation in Indonesia and any escalation of trade tensions between China and the US, which may result in higher operating costs. [[1]]
Peer Comparison
The following table compares Wilmar International to its peers based on various financial metrics: [[4]]
| Company | Ticker | Recom. | Price (lcl curr) | TP (lcl curr) | Market Cap (US\$ m) | CY25F FD Core P/E (x) | CY26F FD Core P/E (x) | 3-year EPS CAGR (%) | CY25F Net Gearing (%) | CY26F Net Gearing (%) | CY25F Recur. ROE (%) | CY26F Recur. ROE (%) | CY25F EV/ EBITDA (x) | CY26F EV/ EBITDA (x) | CY25F P/BV (x) | CY26F P/BV (x) | CY25F Div. Yield (%) | CY26F Div. Yield (%) |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Wilmar International | WIL SP | Hold | 3.13 | 3.15 | 14,900 | 12.8 | 10.9 | -6.0% | 95.9% | 91.1% | 5.8% | 6.8% | 9.9 | 8.7 | 0.8 | 0.7 | 5.3% | 5.3% |
| IOI Corp Bhd | IOI MK | Reduce | 3.65 | 3.25 | 5,130 | 18.5 | 16.5 | 5.3% | 9.8% | 6.1% | 10.3% | 11.0% | 11.9 | 10.2 | 1.9 | 1.8 | 2.7% | 3.0% |
| Genting Plantations Bhd | GENP MK | Hold | 4.90 | 5.90 | 996 | 14.7 | 14.9 | 10.1% | 23.7% | 21.1% | 5.5% | 5.5% | 7.3 | 7.1 | 0.8 | 0.8 | 4.1% | 4.0% |
| Kuala Lumpur Kepong Bhd | KLK MK | Hold | 21.40 | 22.25 | 5,026 | 43.3 | 16.2 | 22.8% | 56.0% | 51.3% | 3.3% | 9.8% | 10.1 | 9.0 | 1.6 | 1.5 | 3.2% | 3.7% |
| SD Guthrie Bhd | SDG MK | Add | 4.64 | 5.20 | 7,270 | na | 20.0 | 20.9% | 7.6% | 22.6% | 1.6 | 1.6 | -93.5% | 8.0% | NA | 9.4 | 2.9% | 3.0% |
ESG Assessment
- Wilmar is a member of the FTSE4Good Developed Index, FTSE4Good ASEAN 5 Index, and Dow Jones Sustainability Indices. [[5]]
- Ranked number one in the 2022 assessment by the Sustainability Policy Transparency Toolkit (SPOTT) with an improved total score of 93.2%. [[5]]
- LSEG ESG Combined Score: B-. [[5]]
- FTSE Russell ESG rating: 3.8. [[5]]
- MSCI rating: A. [[5]]
- Sustainalytics ESG Rating: High Risk. [[5]]
- S&P Global ESG score: 75. [[5]]
Key ESG Considerations
- Wilmar prohibits any form of forced, trafficked, or bonded labor within its operations or supply chains. [[5]]
- Directly recruits workers in Indonesia and Malaysia and directly pays for all recruitment fees. [[5]]
- Commitment to reduce GHG emissions intensity by 15% for all its palm oil mills by 2023, against its 2016 baseline. [[5]]
Financial Summary
| (US\$m) | Dec-23A | Dec-24A | Dec-25F | Dec-26F | Dec-27F |
|---|---|---|---|---|---|
| Revenue | 67,155 | 67,379 | 73,970 | 77,300 | 80,825 |
| Operating EBITDA | 3,642 | 3,602 | 4,058 | 4,142 | 4,311 |
| Net Profit | 1,525 | 1,170 | 1,380 | 1,467 | 1,501 |
| Core EPS (US\$) | 0.28 | 0.19 | 0.22 | 0.23 | 0.24 |
| Core EPS Growth | (31.9%) | (33.8%) | 17.9% | 6.4% | 2.3% |
| FD Core P/E (x) | 8.48 | 12.80 | 10.86 | 10.21 | 9.97 |
| DPS (US\$) | 0.13 | 0.13 | 0.13 | 0.13 | 0.13 |
| Dividend Yield | 5.31% | 5.32% | 5.28% | 5.28% | 5.28% |
| EV/EBITDA (x) | 10.25 | 9.93 | 8.70 | 8.53 | 8.15 |
| P/FCFE (x) | 6.17 | NA | 12.25 | 20.86 | 16.08 |
| Net Gearing | 100% | 96% | 91% | 88% | 85% |
| P/BV (x) | 0.74 | 0.75 | 0.73 | 0.71 | 0.69 |
| ROE | 8.80% | 5.84% | 6.84% | 7.06% | 6.99% |
