Wilmar’s Profit Misses Estimates on Foreign-Exchange Losses

Wilmar International Ltd., the world’s biggest palm-oil processing company, said third-quarter profit gained 24 percent, missing estimates, as foreign-exchange losses countered earnings in sugar milling.

Net income rose to $321 million, or 5 cents a share, in the three months ended Sept. 30, compared with $259.5 million, or 3.9 cents, a year earlier, the Singapore-based company said today in a statement. That compares with the $443.3 million mean estimate of four analysts in a survey compiled by Bloomberg. Excluding losses on currencies and stocks, Wilmar’s profit more than doubled to $442.2 million.

“The operational results were less than we expected,” partly because of the performance of the sugar unit, said Ben Santoso, an analyst with HwangDBS Vickers Research Sdn. in Singapore. “Sugar’s contribution to profits will grow, though, as Wilmar’s likely to build up this segment with acquisitions.”

The Singapore-based oil trader and processing company has diversified into sugar to meet demand in Indonesia and India and to rely less on China’s cooking oil market, where it has a 50 percent share. Wilmar became the world’s eighth-largest sugar producer last year after paying A$1.75 billion ($1.8 billion) for Australia’s Sucrogen Ltd., the company’s biggest acquisition.

Wilmar is planning to expand sugar production to meet rising Asian demand for the sweetener, Chief Operating Officer Martua Sitorus said after a presentation in Singapore today.

Sales volumes from sugar and higher food commodity prices boosted third-quarter revenue by 69 percent to $13 billion, Wilmar said. Sugar milling, while adding $56 million in pretax profit, incurred a foreign-exchange loss of $63.6 million from dollar-denominated loans. The company also reported a loss of $71 million from investment securities.

Diversify From China

The shares dropped 4.1 percent, the most since Oct. 5, to close at S$5.36 in Singapore trading today. Wilmar has fallen 4.8 percent this year, less than the 10 percent decline in the benchmark Straits Times Index.

The company has sought to diversify from China as the government started to cap retail prices of food to curb inflation. That led to makers of cooking oil crushing soybeans at a loss as raw-material costs exceeded retail prices.

Wilmar’s margins on soybean crushing in the third quarter were “satisfactory,” after China allowed companies to raise retail prices in August, the company said. The oilseeds and grains business boosted sales volumes by 15 percent in the quarter as demand from the livestock industry grew, Wilmar said.

“Nevertheless, the operating environment for oilseeds and grains will continue to be challenging as crush margins remain under pressure,” Chief Executive Officer Kuok Khoon Hong said in the statement.

China Real Estate

For the moment, a drop in raw material prices has meant Wilmar has no need to increase cooking oil prices, Kuok said at the presentation. A cooling of China’s inflation to 5.5 percent in October from 6.1 percent the previous month is helping to “improve” the company’s business in the country, he said.

Wilmar said on Dec. 21 that it’s planning to diversify into property development in China, a move that sent the food trader’s shares plunging 6 percent in four days. Analysts at Citigroup Inc. and Goldman Sachs Group Inc. had queried the rationale for the company’s entry into real estate.

“We’re still looking, scouting around” for property in China after a recent price weakness, Kuok said. “We’re very cautious still. Unless it’s very cheap, we won’t buy.”

China’s home prices may drop as much as 30 percent next year because the government’s anti-inflation measures are tightening credit flow, Barclays Capital Research said yesterday.

Palm Oil Products

Wilmar sold 16 percent more processed palm and lauric products in the third quarter. An 11 percent gain in the yields at Wilmar’s plantations and a 20 percent increase in average crude palm oil prices compared with a year earlier boosted the farming unit’s pretax profit by 15 percent.

The company’s palm processing margins should improve further after Indonesia cut its maximum export tax for refined, bleached and deodorized palm oil to 10 percent from 23 percent, while retaining a rate of 22.5 percent for crude palm oil, Kuok said. The changes were effective as of Oct. 1.

This is “highly advantageous” for Wilmar, Kuok said. Indonesian palm oil plantations account for one-third of the company’s total, he said.

He dismissed claims by India’s farm minister Sharad Pawar made last month that the country could stop importing palm oil within five years by growing all of its needs locally. “No way,” Kuok said.

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