Wilmar's 2Q12 earnings to surge 36-56%

But it's still 21-31% below 2Q11 level.

According to DBS Vickers, Wilmar's 2Q12 earnings should recover 36-56% q-o-q; but still 21-31% below 2Q11 level. We expect Wilmar to book 2Q12 earnings of US$280-320m (+36-56% q-o-q) premised on a M&P pretax recovery; but softer contributions from Consumer/Sugar due to seasonally-lower volumes.

Here's more from DBS Vickers:

We expect Indonesian Palm & Lauric processing margins to remain robust (2Q12 average refining margins had stood at US$87/MT vs US$67/MT in 1Q12); potentially offsetting weaker margins elsewhere. Oilseeds & Grains pretax is also anticipated to turn slightly positive – judging by the average daily China crush margins data. Compared y-o-y however, 2Q12 earnings should remain 21-31% below, given crushing overcapacity in China and the drop in CPO prices.

FY12F-14F earnings cut by 4-8%. This is due to the slower pace of margins recovery for Oilseeds & Grains M&P over FY13F-14F on tightness in soybean supplies and intense competition. FY13F-14F Palm and Lauric M&P pretax profits have also been lowered by 1-5% from previous forecasts on expectations that new, competing refining capacities will gradually come on stream. We also expect Consumer margins to compress in FY12F-14F due to stronger feedstock costs. Accounting for the above changes, we have cut our DCF-based TP to S$3.90 from S$4.25.

While 2H12 should see Wilmar benefiting from a 50% increase in Indonesian refining capacity and a seasonal uplift in CPO output, we remain cautious on the counter given the intense competition in China oilseed crushing business and thin refining spreads in Malaysia and the EU. We are maintaining our HOLD call for a 10% upside and a 2% yield. At our revised TP, the counter would trade at FY12F PE of 12.8x.

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