Wilmar’s 5% price increase to pose ‘insignificant’ impact

Wilmar’s increased cooking oil prices may no longer restore its margin back to US$40/MT, says DBS.

According to DBS, the price increase would only raise Wilmar's FY11F and FY12F net profit by 0.7% and 1.1%, respectively.

Here’s more from DBS:

Bloomberg yesterday reported that Wilmar was raising its cooking oil prices in China by an average of 5%. This was confirmed by the company which had informed their dealers yesterday of the c.5% price (average) increase across their range of cooking oil products and that the price
increase is effective from yesterday.

In July 2011, we estimated that the removal of the price cap were to restore Wilmar's Consumer segment margin back to c.US$40/MT (i.e. to levels before price controls were imposed in Nov 2010, vis-a-vis US$33 in 1Q11), Wilmar's FY11F and FY12F net profit would increase by
1.1% and 2.3%, respectively.

However, raw material prices have since increased, and in our view a 5% increase this time may no longer restore its margin back to US$40/MT. Therefore, assuming that net ASP is the same as the raw material cost, a 5% increase would raise Wilmar's FY11F and FY12F net profit by 0.7%
and 1.1%, respectively.

In our estimates, Wilmar's Consumer segment contributes approximately 31% and 6% of Wilmar's FY11F Revenue and EBIT, respectively. Hence, while we see this development as positive for Wilmar, the impact is insignificant, in our estimation. Wilmar will announce its 2Q11 results on Friday, 12 Aug11 and we will be reviewing our numbers then. For now, our Buy rating and S$6.25 TP are unchanged.

Photo credit: noodlepie

Also Read

Olam Agri raises offer for Namoi to A$0.70 per share

Olam jacks up Namoi Cotton acquisition bid to $0.62 apiece

Since you're here...

...there are many ways you can work with us to advertise your company and connect to your customers. Our team can help you dight and create an advertising campaign, in print and digital, on this website and in print magazine.

We can also organize a real life or digital event for you and find thought leader speakers as well as industry leaders, who could be your potential partners, to join the event. We also run some awards programmes which give you an opportunity to be recognized for your achievements during the year and you can join this as a participant or a sponsor.

Let us help you drive your business forward with a good partnership!

I want to download the media kit