Compiled by Navin Sregantan
SEPT 4 CLOSE: $3.84
TARGET PRICE: $3.89
Maybank Kim Eng, Sept 3
Recall that Wilmar International's second-quarter oilseeds and grains profit before tax fell 80 per cent year-on-year on the back of weak soya bean crushing margins.
Thankfully, August's Chinese crush margins rose sharply and so did palm oil prices.
After posting losses in July, August's Chinese soya bean crush margins rose to 241 yuan (S$47) a tonne, the highest since October 2018.
Direct government intervention to address African swine fever (ASF) pork supply disruptions likely played a part.
Keep in mind that soya bean meal is a key input of pig feedstock.
It should help turn around Wilmar International's oilseeds and grains segment, which contributes nearly 50 per cent to revenue.
Despite higher input costs, Indonesian bio-diesel margins have also remained positive.
These combined should provide for a better 3Q19.
Still, we remain cautious as significant risks exist from escalating trade-war tariffs at the start of the North American soya bean harvesting season, and an effective resolution of the ASF remains elusive.
We prefer First Resources (buy, target price: $1.80), which should benefit from rising palm oil prices, its young acreage and low costs.
SEPT 4 CLOSE: $0.65
TARGET PRICE: $0.67
RHB Research Institute, Sept 4
On Monday, BreadTalk announced the proposed acquisition of Food Junction for $80 million.
Currently, Food Junction has 12 foodcourts in Singapore and three in Malaysia.
Management considers the location of Food Junction food courts would complement well the existing portfolio of BreadTalk.
In addition, Food Junction has a different value proposition from BreadTalk's Food Republic.
During the briefing on Tuesday, management clarified that Food Junction's weak first-half earnings were due to several factors that would no longer prevail once the acquisition is completed.
We estimate the group to incur around $1.8 million of additional interest expense a year to fund this acquisition, an amount that is likely to offset most cost synergies derived from the acquisition.
Post second half of FY2020, we think profitability could expand as the new management team will aim to improve Food Junction's average ticket size and table turns.
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