Why analysts think Wilmar's results mean worst is over for agri sector

Net income hits US$390m.

According to Nomura, Wilmar’s 3Q (adj net income – US$390mn) was mostly in line with expectation (3% higher than our estimates).

9M now forms ~70% of consensus FY income (in line with the historical trend), and with sugar prices improving, they expect it to meet FY estimates.

Here's more from Nomura:

We don’t expect any upgrades but the stock may react positively to the results as the worst seems to be over for the sector.

Sugar milling led from the front (with significant growth in both volumes/margins); crush margins improved sequentially but Associates (unexpected) and CPO (expected) led the drag. Refining margins contracted a bit but still solid, and sugar refined normalized.

Wilmar is now trading at ~13.5x CY14F P/E, having rebounded from the lows. We believe the worst is over for the sector and the stocks would consolidate at these levels (and we see the most upside in Olam [OLAM SP, Buy]).

On Wilmar, we remain Neutral as we continue to believe that the company would find it difficult to grow by double-digit in its current businesses as the oilseed crush situation in China remains challenging, Australian sugar/refining/consumer pack are mature and Indonesia refining margins should structurally come down.

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