Not so sweet: Wilmar expects losses in sugar milling

Operations of its subsidiary Sucrogen are forecast to be back-end loaded due to seasonality.

Following Wilmar’s announcement that it is acquiring more sugar assets in Australia, analyst at OCBC Investment Research noted:

Good strategic fit… Overall, we think that the latest move would be a good strategic fit for Sucrogen. Besides increasing its capacity, we note that the move will also add to its capabilities; this as PCSMA has recently invested in facilities to manufacture and market furfural, which is a globally traded industrial chemical used in solvent extraction, foundry resins and pharmaceuticals. Last but not least, Sucrogen believes that there is great potential in the region for expansion of the cane-growing area.
but no immediate boost expected. We note that we are unlikely to see any immediate boost, given that the deal may take some time to push through. WIL expects to only hold a postal ballot for the 214 members to vote in late July. And recall its previous Sucrogen acquisition, which took a much longer-than-expected time for the regulators to give their approval. Meanwhile, Sucrogen's own operations are expected to be back-end loaded due to seasonality. As such, WIL expects sugar milling to incur losses in the first half of the year (posted a 1Q11 pre-tax loss of US$7.2m); but remains confident that Sucrogen should be able to achieve an EBITDA target of US$100m for this year.

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