'Timely' crop purchases fuel Wilmar recovery

Wilmar International showed some return to form, helped by a return to the black for its oilseeds and grains division despite continued poor oilseed crush margins in China.

The palm oil-to-sugar group, in which US giant Archer Daniels Midland is a major shareholder, reported earnings of $405.8m for the July-to-September period, a rise of 26% year on year, and a sharp improvement on the performance the quarter before.

In the April-to-June quarter, Wilmar reported its worst quarterly performance since 2007, hurt by poor operating margins in oilseeds crushing China, where the group is the biggest foreign operator in the market.

The rebound in the latest quarter reflected in part one-off items, including gains on foreign exchange and a better performance by equity investments.

However, even excluding non-operating items earnings, while showing a 14.0% decline year on year, were, at $388.0m, well ahead of those the previous quarter, and above market expectations of a $335m result.

'Timely purchase'

"The group achieved satisfactory results in spite of difficult market conditions, especially in oilseeds and grains," Kuok Khoon Hong, the Wilmar chairman and chief executive, said.

The oilseeds and grains processing unit reported a pre-tax profit of $60.3m which, while down 40% year on year, represented the first quarter in the black in 2012, and helped by crop purchases ahead of the summer uptick in prices.

Wilmar touted "the timely purchase of raw materials", which helped to boost the division's overall crush margins, even if those in China remained "poor",

Chinese soybean crush margins currently stand at a negative 500 remninbi a tonne, among their worst since at least 2008, according to Morgan Stanley.

'Positive on long-term prospects'

Furthermore, the key palm and laurics unit raised pre-tax profits by 6.1% to $181.2m, reflecting a boost to Indonesian operations from a change to the export duty regime in September last year.

In sugar, the pre-tax profits jumped 77% to $101.3m, helped by its Australian milling operations running at full capacity, and by the acquisition of PT Duda Sugar Inernational.

And Mr Kuok said that the group "remains positive on its long-term prospects", citing "good economic" growth in Asian countries such as China, India and Indonesia, and a continued rise in production at its Indonesian palm oil operations.

Market reaction

The results were deemed "stronger" by Singapore broker OCBC, which raised to "buy" its rating on Wilmar shares.

TA Securities analyst James Ratnam termed said that the results offered "a glimmer of hope", adding that recent weakness in commodity prices "bodes well for the processing businesses".

However, given continued weak margins for Chinese crushers, the broker took "a wait and see approach before making more aggressive changes to our earnings forecasts", and restated a "hold" rating on Wilmar stock.

The shares closed up 1.6% at Sing$3.17 in Singapore.

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