Wilmar International Ltd
March 3, S$6.67

BUY: For its FY2009 results, Wilmar International Ltd saw revenue decrease 18% to US$23.89 billion, or about 6.8% shy of our FY estimate, but no surprises here due to lower commodity prices. However, net profit jumped 22.9% to US$1.88 billion, underpinned by strong earnings posted by its oilseeds & grains, consumer products and plantations & palm oil mills divisions.

And if we strip out the fair value adjustment from biological assets, core net profit of US$1.87 billion was almost spot on our US$1.86 billion forecast (this already includes exceptional net gains of US$167 million arising from the sale of new shares in Wilmar China Ltd).Wilmar has also declared a final dividend of S$0.05 per share (versus S$0.045 last year).  Going forward, Wilmar remains upbeat about economic activities in Asia, especially in China, India and Indonesia. Management intends to spend no less than US$1 billion on capex to expand its operations here.

While Wilmar did not give a detailed breakdown, we understand that increasing its plantation assets in Indonesia will be a priority (both via new planting and acquisitions). It also intends to increase its refining and crushing capacity there to cater for higher CPO output.  Over in China, Wilmar intends to increase its flour and rice milling business as it sees growing demand for high quality processed agricultural and consumer products due to rising affluence and rapid urbanisation there.Meanwhile, Wilmar is considering expansion into other related agri-businesses such as sugar plantations and mills — likely to be in Indonesia — as management sees good prospects in this area.

A recent Reuters article noted that the International Sugar Organisation has increased its forecast for the global sugar deficit in 2009/2010 from a previous estimate of 7.2 million tonnes to 9.4 million tonnes. However, management says it will be taking small steps in this new area and will continue to do feasibility studies.

As such, it will not be investing a lot yet and this is more likely a 2011 story.  We are keeping our FY2010 estimates intact as FY2009 results were mostly in line with our estimates. Maintain “buy” with an unchanged fair value of S$8.23 (based on 20 times FY2010F EPS). — OCBC Investment Research (March 2)

Sands China Ltd
March 3, HK$10.46

Initiate coverage with OVERWEIGHT: Sands China Ltd (Sands) is a leading casino operator in Macau. Its casinos (Sands Macao and The Venetian Macao) are two of the top three casinos. With the resumption of parcel 5 and 6 development, Sands has the biggest expansion plan in Macau.  We see potential upside, driven by our 26% Ebitda CAGR estimate for FY2010-FY2012, with the Ebitda multiple remaining flat.

We prefer Sands as it has a differentiated strategy, focusing on the mass market, proven execution ability, and the most aggressive expansion plans in Macau. It already generates the highest Ebitda among six concession players. With the first-mover advantage in Cotai and improving financial position due to the recent IPO, we believe Sands will continue to expand and remain a market leader in the long run.

The company recently raised US$2.4 billion from its Hong Kong IPO. Of this, US$0.8 billion is related to old shares and the remaining amount is for restarting parcel 5 and 6 projects in Cotai and paying down existing debt.  Sands had a net debt position of HK$3.1 billion as of December 2008. After the recent IPO, the company paid down US$500 million debt and we expect its net debt to drop to US$2.1 billion as of December 2009. We believe its net debt will rise back slightly to around US$2.3 billion by the end of 2011, when the company is completing parcel 5 and 6. Once parcel 5 and 6 are completed, we expect the company can generate about US$1.2 billion free cash flow a year, which should allow it to reduce its debt further, or continue to pursue parcel 3 projects. In the long term, we believe Macau gaming will continue to grow  due to the significant potential of the Chinese market. Macau is the only city in greater China that allows casino gambling.  We believe China will remain one of the fastest-growing countries in the next decade. We expect Macau to continue to benefit from the rapid expansion and increased affluence of Chinese consumers. In the short term, the Macau gaming market will be back on track to grow, in our view. The Macau gaming revenue had grown 46% in 2007, and 52% in the first eight months of 2008 due to the new quality supply and increased availability of credit.

However, growth started to stall in September 2008, and from then until June 2009, monthly gaming revenue dropped 9% y-o-y, on average, according to Macau Statistics and Census Services. We believe the slowdown was a result of a combination of travel restrictions, flu impact, and global economic slowdown.

Sands trades at 13.4 times 2010E EV/Ebitda, while its relevant global peers range between 6 and 27 times, with an average of 11.3 times for the group. Our Dec ‘10 price target of HK$13.5 is based on 13.5 times 2011E EV/Ebitda (that is, no multiple expansion assumed). Initiating coverage with “overweight” rating and Dec ‘10 PT of HK$13.5. — JP Morgan (March 1)

Standard Chartered plc
March 3, HK$183

SELL: Standard Chartered rarely upsets during result seasons, but the Middle East and South Asia (Mesa) credit costs and reduced whole-banking income are likely to be negative. We expect the bank to report lower-than-expected profit of US$3.1 billion, which is 9% lower than the market.
The long-positive tone of the bank should change given developments in the UAE and compared with its trading statement in December 2009, the market would not receive this well. We maintain our “sell” rating on the stock.

StanChart’s loan-loss provision (LLP) for Mesa has risen from US$105 million in 2H2008 to US$460 million in 1H2009, due largely to worsening Saudi non-performing loans (NPLs), not Dubai NPLs. Where Dubai World is not yet considered an NPL and where NPLs in Mesa already reached some US$1 billion by 1H2009, the outlook is negative for 2H2009 and 2010.

Even our estimate of US$782 million in LLP during 2H2009 could prove to be too low.  The year 2010 remains a more critical concern. StanChart’s Mesa LLP has climbed from four basis points (bps) to nine 9bps of group assets, and this could surge to 15bps by 2H2009CL. This increase, attributable to this one region alone and only taking into account its credit costs, would result in a sharp reduction to ROA for the group.

Where its Mesa NPLs were up 600% in 2008, then 300% in 2009CL, a further uptick even by just 45% is not out of order during 2010CL. The impact of LLP reducing return on assets then becomes very high at 35bps.

We expect the bank to report US$3.1 billion of profit, versus consensus and our estimates of US$3.4 billion and US$3.2 billion, which is 9% lower than the market.

Less economic growth in UAE, sharply loftier NPLs there and a higher risk profile generally are likely to result in less wholesale-banking income in the Emirates.

Where StanChart is primarily a wholesale bank, as evidenced by its income distribution, slower growth here and less contribution to earnings will have a noticeable impact on the group. Its Mesa wholesale-banking income has risen from 13% to 16% of group from 2007 to 1H2009, and thus has an increasing impact on group earnings. StanChart is trading below its long-term average, which seems right given the obstacles ahead such as UAE NPLs, wholesale-banking income and regulatory changes.

We have 1.5 times PB and 12 times PER as our target multiples, which imply 12% downside. Depending on the magnitude of UAE credit costs and income threat, there remains risk to our target multiple. StanChart would be on 1.4 times PB weighted to its loan-book distribution, so here too costly. — CLSA Research (March 1)

This article appeared in Capital page of The Edge Malaysia, Issue 796, Mar 8 - 14, 2009.