Wilmar Net Drops 49% on China Soybean Crushing, Shares Plunge

Wilmar International Ltd., the world’s largest palm oil trader, fell by the most in 18 months in Singapore trade after first-quarter profit fell 49 percent.

Net income was $161.8 million in the three months ended March 31 from $315.4 million a year earlier, as seasonal losses at its sugar unit were compounded by shrinking margins in soybean crushing and palm refining. The result missed an estimated range of $298 million to $321 million by DBS Vickers Securities Pte and a $200 million to $220 million range estimate from UOB Kay Hian Holdings Ltd.

“It’s disappointing,” Ben Santoso, an analyst with DBS Vickers, said by phone. “The plantations and consumer products were ahead of expectations, but they couldn’t offset the drop in processing margins in soybean and palm.”

Wilmar fell 4.5 percent to S$3.19 at 10 a.m. in Singapore trading, the biggest decline since August 15, 2012. The results were announced after the market closed yesterday.

Wilmar is expanding into sugar and packaged foods to diversify from palm oil, an industry beset by environmental scrutiny in recent years. Together with First Pacific Co., Wilmar last month bid A$1.3 billion ($1.2 billion) for Goodman Fielder Ltd., the biggest baker in Australia and New Zealand, to secure food brands that could be marketed in China.

The consumer products division recorded the second-best pretax profit increase of Wilmar’s businesses on strong sales in China, Vietnam and Indonesia, rising 26 percent to $71 million in the quarter, according to a statement from the Singapore-based company yesterday. The upstream palm plantations and mills unit increased pretax profit 53 percent to $110.4 million on higher crude palm oil prices.

China Soybeans

“Consumer pack sales volumes were better than expected despite China entering weaker demand post Chinese New Year,” said Leow Huey Chuen, an analyst with UOB Kay Hian. “But the crushing loss is larger than expected and in sugar too due to hedging losses.”

Wilmar incurred foreign exchange losses of $31.4 million and a $21.8 million loss on investment securities in the first quarter. Net cashflow turned negative $668 million from a positive $182 million a year earlier.

The drop in the margins from refining crude palm oil was another “key miss” in the results, said Wei Bin, an analyst with Maybank Kim Eng Research Pte.

Excessive soybean imports by China and lower demand for soybean meal because of bird flu squeezed profits at the oilseeds and grains unit, Wilmar said. The unit had a pretax loss of $57.4 million, compared with a $47.2 million pretax profit a year earlier.

Tough Conditions

“Whilst current crushing conditions in China are tough, we believe that such conditions are not sustainable long term,” Chief Executive Officer Kuok Khoon Hong said in the statement. The margins in soybean crushing are forcing the refiners into mergers and that “will ultimately benefit us.”

Total sales rose 0.7 percent to $10.3 billion. Wilmar’s pretax loss from its sugar unit was $54 million, wider than the $13.6 million loss a year earlier.

The company agreed this year to form a Myanmar sugar venture and took joint control of India’s largest refiner of the sweetener, Shree Renuka Sugars Ltd., in a $200 million deal.