Wilmar International Ltd., the world’s biggest palm-oil processing company, fell the most in Singapore trading in more than three years after reporting quarterly profit that missed analysts’ estimates.
The shares slumped 11 percent to S$5.22, their largest decline since Oct. 6, 2008, compared with a 1 percent drop in the benchmark Straits Times Index. Wilmar reported net income of $500 million in the three months ended Dec. 31, compared with the $519.8 million average estimate of six analysts in a survey compiled by Bloomberg.
Wilmar’s palm and laurics business posted a 32 percent drop in pre-tax profit as demand from China, India and Europe weakened and margins contracted because of “unfavorable market conditions” in Asia’s two fastest-growing major economies, the company said in its earnings statement today. Returns from crushing oilseeds and grains in China remained “challenging.”
“We had expected some improvement from the China business, but it apparently did not,” said Ben Santoso, an analyst with DBS Vickers Securities in Singapore. “The crushing margin in China is probably not going to improve markedly this quarter.”
Wilmar sold 8 percent less palm and laurics products in the fourth quarter from a year earlier even as revenue rose 6 percent, according to the statement. Margins were higher in Indonesia because of a change in the country’s export duty structure, the company said.
The maximum export tax for refined, bleached and deodorized palm oil was reduced to 10 percent from 23 percent and the rate for RBD palm olein, the processed product used as cooking oil, was cut to 13 percent from 25 percent, effective Oct. 1.
Net income gained 57 percent from $318.6 million in the fourth quarter of 2010, according to the statement. Profit increased 21 percent last year to $1.6 billion.
Wilmar’s plantation and palm oil mills business reported a 1 percent drop in pre-tax profit in the fourth quarter from a year earlier because of lower crude palm oil prices. Unit production costs also rose as the company spent more on labor, fertilizer, fuel and repairs and maintenance.
Excluding a $262.7 million gain in a revaluation of Wilmar’s palm oil plantations, the segment’s profit before tax was $113.4 million, down 12.5 percent, the according to the statement.
“Last quarter, anyone who made money should be happy,” Chief Executive Officer Kuok Khoon Hong said at a briefing in Singapore today.
Oilseeds, Grains, Sugar
Wilmar’s oilseeds and grains business rebounded from a loss in the fourth quarter of 2010 as sales volumes grew 30 percent. While margins in China continued to be a challenge, the quarter was “a sharp recovery” from a year earlier because of increased demand from the livestock industry and higher sales of flour and rice, the company said.
“I don’t see a big improvement this year, but we have big efficient plants,” in China, Kuok said. “Long term, we should have an edge over our competitors.”
Earnings from sugar were dragged down by lower quality sugar cane from the last season, resulting in a low extraction rate, Wilmar said.
Prices of sugar also declined in the fourth quarter, which eroded earnings, DBS’s Santoso said. Wilmar, which buys raw sugar and processes it, “just has to manage in a way to minimize the losses if prices were to decline again,” he said.
The Singapore-based company completed the A$1.8 billion ($1.9 billion) purchase of Sucrogen Ltd., Australia’s largest sugar producer, in December 2010 to help meet demand in Indonesia and India and rely less on China’s cooking oil market. Wilmar’s sugar business contributed 7.6 percent to sales in the fourth quarter.
Archer Daniels Midland
Olam International Ltd., a rival to Wilmar, said sugar production may be in surplus again next season, which may depress prices further. Raw sugar traded in New York slumped 27 percent last year, the most in a decade. “Trading conditions would probably be a little more volatile” in the second half, Olam’s CEO Sunny Verghese said Feb. 15.
Wilmar said today it signed a memorandum of understanding with Archer Daniels Midland Co., the world’s largest grain processor, to cooperate in fertilizer distribution, freight operations and tropical oil refining in Europe. “On shipping, Wilmar and ADM can share information and cargoes” to drive efficiency, Kuok said.
About 7 percent of Wilmar’s debt is from European banks, Chief Financial Officer Ho Kiam Kong said at the briefing. “The cost of funding has stabilized this year after going up in the fourth quarter.”
Wilmar cancelled its plan to list its China unit in Hong Kong in 2010 after its financial adviser told the company the shares will fetch a lower price-to-earnings ratio than planned.
“If Wilmar were to list our Chinese unit, we’d do it in China for better valuations,” CEO Kuok said today.