SINGAPORE: Wilmar International Ltd, the world's largest listed palm oil firm, missed earnings estimates for the third straight quarter as its Chinese soybean business continued to suffer, spurring broker downgrades and pushing its shares to a three-year low.
Margins from producing edible oils in China, which accounts for almost half of Wilmar's revenue, turned negative as soybean prices surged nearly 30 percent in the last two months because of the worst drought in the US Plains and Midwest in 50 years.
The rise in raw-material costs poses yet another challenge for Singapore-listed Wilmar, which has been grappling with excess crushing capacity in China.
"The crush margin in China was the worst I've seen in the 10 years we've been in the business. But I think one should not, just because of two bad quarters, write off the crushing division," Chairman and CEO Kuok Khoon Hong told reporters in Singapore on Wednesday.
Wilmar, the No.1 oilseeds crusher in China by capacity, posted a 70 percent drop in net profit to $117.1 million in April-to-June, far below an average forecast of $328 million in a Reuters poll of five analysts.
Analysts expect no quick turnaround.
"You're going to have a situation where you'll have high soybean prices, and on the downstream side, your selling price is restricted. In the middle, you have overcapacity in terms of crushing. That sounds like a pretty lethal combination to me," said James Koh, an analyst at Maybank Kim Eng.
"I have a sell call because I think their earnings are not going to turn around at least for the next two quarters. The stock market is a very unforgiving place," Koh said.
The stock, already the third-worst performer in the food products sector among large and mid-cap firms globally, tumbled as much as 10 percent to S$3.04. More than 48 million shares were traded, 4.6 times the average full-day volume traded over the past 30 days.
Wilmar has lost 37 percent this year versus a 15 percent rise in the broader Singapore market and an 8 percent gain in commodity play Noble Group, which reported a 39 percent increase in quarterly profit.
Shares in Olam International and Golden Agri Resources were down more than 2 percent.
At the packed briefing in a ballroom of a five-star hotel where staff had to bring in more seats at the last minute, Kuok defended his strategy of diversifying from palm oil into related areas and said it would pay off over the long term.
Singapore has not changed its prime minister just because economic growth has slowed from over 10 percent in 2010, he said.
"Recently, my luck has not been so good," Kuok said.
MORE CAUTIOUS
Earnings in the second quarter were also hit by losses in its sugar segment, while plantations and palm oil mills generated lower profits.
"Under such conditions, I think what we should do is to be extra cautious. Don't take unnecessary currency positions, don't be too aggressive in M&A," said Kuok.
He defended Wilmar's expansion in recent years, saying "there's no investment we have made that we have really regretted."
Chief Operating Officer Martua Sitorus said Wilmar has no plans to bid for the whole of Goodman Fielder, Australia's largest listed food company.
Wilmar's business activities span the gamut of oil palm cultivation, oilseeds crushing, edible oils refining, sugar milling and refining, oleochemicals, biodiesel manufacturing and grains processing.
The company gets 48 percent of its revenue from China, with Southeast Asia contributing 23 percent. The remainder comes from Europe, Australia, New Zealand and other countries.
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