Wilmar International

If I remember correctly, 09/10 was bad year for CPO, but big boom for Wilmar. late 10/11, was boom year for CPO, but Wilmar went down from then.

(30-10-2013, 10:33 AM)freedom Wrote: If I remember correctly, 09/10 was bad year for CPO, but big boom for Wilmar. late 10/11, was boom year for CPO, but Wilmar went down from then.

Perhaps you are right, but IMO Wilamr's share price does follow the movements of CPO, just the reaction time could be faster or slower. If you put on a 5 years chart between Wilmar and CPO, you will know what I mean. The recent run up of Wilmar and GAR could be also due to the run up in the CPO.

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Just to add, Wilmar's realised profits is much dependant on the margin of the production as what you mentioned, whereas Wilmar's unrealised profits is dependant significantly on the fair value changes of the plantations. Certain investors would buy when CPO downs with the expectation the Wilmar could post higher profits, but there is also another batch of investors that buys when CPO ups because they are expecting higher NAV.

Wilmar also produced CPO though insufficient for internal demand, so when CPO rise they also benefitted from their biological assets. IIRC this 15% of their revenue accounted for more than 1/2 of their profits when CPO was surging. OTOH CPO is input cost, so if end prices dont increase as when China imposed curbs on food prices, they will suffer.

That's the theory part. In practice it is all about whether Kuok view of CPO is right or wrong and he positioned accordingly. They say Wilmar is 1/3 of the Msia CPO futures trading... plus his physical goods in transit... he can't reverse his position easily when he is wrong and EVERYONE knows what he is doing.

IIRC in 2010 Wilmar had too much money and became itchy fingers going into corporate jet and property development. That was the beginning of the end for the 2nd largest cap stock in SGX.

(30-10-2013, 10:53 AM)valuebuddies Wrote:

(30-10-2013, 10:33 AM)freedom Wrote: If I remember correctly, 09/10 was bad year for CPO, but big boom for Wilmar. late 10/11, was boom year for CPO, but Wilmar went down from then.

Perhaps you are right, but IMO Wilamr's share price does follow the movements of CPO, just the reaction time could be faster or slower. If you put on a 5 years chart between Wilmar and CPO, you will know what I mean. The recent run up of Wilmar and GAR could be also due to the run up in the CPO.

---

Just to add, Wilmar's realised profits is much dependant on the margin of the production as what you mentioned, whereas Wilmar's unrealised profits is dependant significantly on the fair value changes of the plantations. Certain investors would buy when CPO downs with the expectation the Wilmar could post higher profits, but there is also another batch of investors that buys when CPO ups because they are expecting higher NAV.

Wilmar's share price correlation could be due to other factors. Rising cpo prices can be seen as indicative of higher demand, so better utilisation rates for wilmar's refining operations. But the volume increase will be offset by smaller refining spreads if prices of refined products don't rise by the same amounts. I don't think nav is of any use for a company like Wilmar.

Non-operating items such as fair value increase of plantation depends on what kind of investors you are.

In the long term, all fair value increase will be offset by impairment or amortization/depreciation(in the end, the fair value will go to 0 as the trees are no longer productive). So it is not really a point to make long term investment.

CPO is only part of the equation for Wilmar. The substantial value of Wilmar right after the crisis was contributed by its great crushing margin of soybeans in China. In FY2009, Oilseeds and grains contributed 600+ million PBT, just slightly lower than Palm and Laurics. Plantation and palm mills contributed less than 400 million PBT. Fast forward to recent FY2012, Palm and Laurics contributed more than 700 million PBT, Oilseeds and Grains barely made a profit, Plantation and Palm mills contributes slight more than 400 million PBT.

The obvious path to a better future for Wilmar lies within Oilseeds and Grains division.

(30-10-2013, 01:27 PM)freedom Wrote: Non-operating items such as fair value increase of plantation depends on what kind of investors you are.

In the long term, all fair value increase will be offset by impairment or amortization/depreciation(in the end, the fair value will go to 0 as the trees are no longer productive). So it is not really a point to make long term investment.

CPO is only part of the equation for Wilmar. The substantial value of Wilmar right after the crisis was contributed by its great crushing margin of soybeans in China. In FY2009, Oilseeds and grains contributed 600+ million PBT, just slightly lower than Palm and Laurics. Plantation and palm mills contributed less than 400 million PBT. Fast forward to recent FY2012, Palm and Laurics contributed more than 700 million PBT, Oilseeds and Grains barely made a profit, Plantation and Palm mills contributes slight more than 400 million PBT.

The obvious path to a better future for Wilmar lies within Oilseeds and Grains division.

Well, with the industry having average crushing capacity utilization of 51% in China in 2012 (per the 2012 annual report), what can we expect? It is almost like a business being closed for half a year, while having to incur a full year of overheads and other costs. No sign of the situation improving significantly in the near future.

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.

(30-10-2013, 01:59 PM)freedom Wrote: 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.

The way I see it is that it's really a joke for Malaysia and Indonesia to implement biodiesel regulations. They must have no idea how much the Europeans are paying for biodiesel. Can Malaysian or Indonesian afford the same price for biodiesel?

Palm oil as biodiesel is not affordable to Malaysian or Indonesian, even Singaporean.

(30-10-2013, 02:26 PM)freedom Wrote: The way I see it is that it's really a joke for Malaysia and Indonesia to implement biodiesel regulations. They must have no idea how much the Europeans are paying for biodiesel. Can Malaysian or Indonesian afford the same price for biodiesel?

Palm oil as biodiesel is not affordable to Malaysian or Indonesian, even Singaporean.

Well, i am not a chemist so i am not sure why they would expect a good take up rate. Are palm oil biodiesel costs similar to the rapeseed oil type usually used in Europe? There are dumping regulations being brought up against Indonesian biodiesel imports over there, so i guess it must have a better cost position.

The bigger worry seems to be about voiding of warranties in using the new blend. If this is not cleared-up, i don't think the take up rate will be very good.