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Investors should focus on Wilmar lnternational‘s overall business vision, instead of fluctuations caused by commodity cycles and other market hiccups, says Kuok Khoon Hong.
Kuok was practically chiding the room full of analysts and reporters who showed up for the company’s earnings briefing, after headlines this morning zeroed in on the dip in the group’s full year earnings.
The chairman and CEO of Wilmar International says the group is on its way to become one of the biggest players in the global food industry, given the breadth and scale of its operations across Asia.
Wilmar’s interests span oil palm plantations to sugar milling, soybean processing and sales of cooking oil and flour to housewives in China. But the company’s earnings have been weighed down by the decline in commodity prices, particularly of crude palm oil. And, investors’ concerns over slowing growth in China, which accounts for a big part ofWilmar’s processing and consumer products business, have pulled down the company’s stock price.
For FY2015, Wilmar posted core earnings of US$1.17 billion, 4.4% lower than the year before. The company attributed this to the foreign exchange losses as regional currencies weakened against the US dollar. Revenue for the year was 10% lower at US$38.78 billion, although sales volumes grew 10% to 65.3 million metric tonnes.
The group’s oilseeds and grains, and sugar units performed strongly during the fourth quarter. Oilseeds and grains registered a 40% increase y-o-y in pre-tax profit to US$164.2 million. The sugar milling business turned in a 49% rise in pre-tax profit to US$80.1 million, as Wilmar was able to sell its sugar at a much higher price during the period.
Nevertheless, Kuok says these quarterly differences in numbers should not detract from the business he is trying to build.
“I think most people don’t really understand our business. Most analysts tend to focus on the negative factors; the China economy slowing down, commodity prices coming down, the renminhi depreciating. But Asia is still the fastest growing region in the world,” he says. “The middle class in Asia is expanding very rapidly, and there is something like a consumer revolution. We can see the demand in terms of quantity and quality for consumer food products is increasing very rapidly.”
Kuok adds that Wilmar still managed to record high sales growth in nearly all the countries it operates in. “Food is the biggest business in Asia and we have a very good base in most of the Asian countries.”
“I really think, in 10 to 20 years’ time, we have a chance to become a very big Asian company. The biggest companies in the agrisector are not upstream, or midstream or processing companies. The biggest companies are the consumer food producers, (such as) Unilever, Nestle. I think we have a business model different from them. We are in the upstream, midstream and downstream (segments), and we are trying to grow in all three segments and on top of that we have a very strong trading division,” he says.
“And that’s where I think you should focus on, not whether plantations can make a few million (dollars) here and there.”
Wilmar ended 2015 with free cash flow of US$1.07 billion, and a net gearing ratio of 0.78 times. It is giving a dividend of $0.055 per share, which brings the total distribution for FY2015 to $0.08 per share, or a payout ratio of about 30%.
Kuok says the company is conserving some cash, “because everything’s so cheap right now so maybe there are some M&A opportunities.”
This article first appeared in The Edge Singapore Market Report.