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On 5 June 12, I did a blog post on whether it was time to go long on Wilmar. Yesterday, someone asked me as well if it is now a good time to go long on Wilmar.
To any seasoned market watcher, Wilmar's share price must look quite tantalising as it hit a low of $3.41 on 14 June 12. That was a good 43% lower than its one year high of $5.99 a share.
Now, if we should think of a reason for the decline in price, it is clearly because of the company's disappointing earnings. The company's crushing business is likely to remain very difficult for some time to come. In fact, the CEO said it could take a few years for excess capacity in China to be absorbed. As this business is about 25% of the company's revenue, a decline in its share price is to be expected but the decline has been disproportional. I have no doubt that short sellers made quite a bit of money here as well.
Wilmar's share price has seemingly found a floor and has rebounded somewhat. I see immediate resistance at $3.70 or so. If it should break resistance, we would probably see short sellers covering their positions which would send share price higher to test the next resistance.
If the company's share price should test a new low, everything remaining constant, we should see stronger buying interest returning. Technically, the momentum oscillators are rising and, so, support this thesis. Look out for a higher low in the momentum oscillators then. That would be a clear signal to go long as the share price is set up for a reversal.
Is it time to buy Wilmar's shares? I feel, at least, it is not a time to sell.
Related post:
Wilmar and China Minzhong: Time to go long?
Bloggy Award
22 comments:
I wanted to average down too. But decided against it. Global demand slowing down has lead to commodities prices dropping. I doubt they will do any better in the next quarter. still waiting for a even lower low before i average down what I bought much much earlier =(
paper loss is huge now for this
Hi FoodieFC,
My paper loss is not small too. :(
A well run and profitable company like Wilmar does not stay low forever. When the cycle turns up once more, they would be one of the best performers again. :)
Citigroup upgraded palm oil firm Wilmar International to ’buy’ from ’neutral’, citing cheap valuations but cut its target price to $4.80 from $5.30 to reflect lower 2012 earnings.
“While there may be one more choppy quarter to go in this cycle, the worst of the negative revisions cycle should be over by the second quarter,” it said in a report.
Wilmar’s earnings are expected to show some recovery in the second half, and its oilseeds processing margins should also improve, Citi said.
So, do we rush to buy Wilmar's shares? Technically, its share price is basing. How long would it continue to do so? Is this a floor or is it the bottom? No amount of foresight would be able to provide answers to these questions.
However, it looks to me that it is not a time to sell Wilmar's shares. So, logically, I bought some. :)
Hi AK,
Wilmar fell through the floor of $3.4 +
Any thoughts?
Hi Ray,
Thanks for the heads up.
I was looking at the chart last night. Long black candle on high volume. I told myself to wait another day to see if price could go lower.
Touched a low of $3.26, I see. Now hovering around $3.29 and $3.30.
I will just have to wait for the selling to dry up before adding to my long position. That is the prudent thing to do.
buying more against all odds huh? ;)
what do you think the sudden selling pressure?
Phillip Capital upgraded Wilmar to BUY. If we believe them, we should be buying. ;p
Cheap valuations with strong fundamentals
Crushing margins remain key risk in the near-term
Rating upgrade to Buy
Investment Actions?
1Q12 results have been below expectations mainly due to losses (US$53mil) in the oilseeds and grain segment. Albeit soybean crushing in China remains the key risk area, we expect sequential improvement at the upcoming 2Q12
results on Aug 12 with contributions coming mainly from the plantations, palm & laurics, and consumer segments. In view of this, we increase our net profit forecast by 1% and 6% for FY12E and FY13E respectively. Our price target of S$4.37 is based on our residual income (RI) methodology.
The stock is currently trading at just 12.5x versus its fouryear
historical average PE of 16.0x. We are upgrading our rating from Accumulate to Buy.
Wilmar: BUY.
Hi Ray,
This can only mean that there are more sellers than buyers in the current timeframe. Why is this so? Increased pessimism? More short sellers? Capitulation? All possible, I suppose.
Is this the big flush down that people are waiting for? I wonder...
Shares of the world’s largest palm oil firm Wilmar International fell as much as 6.4% to their lowest in more than 3 years on Friday, on market talk that China had asked edible oil suppliers to keep prices stable, traders said.
Responding to market talk that China’s government is imposing a price increase limit on cooking oil, Wilmar said there was no control on cooking oil prices.
“However, the government has advised that companies should avoid increasing prices unless it is absolutely necessary,” Wilmar said in a statement on Friday.
Wilmar shares fell more than 6% to $3.22, with 22 million shares traded, more than double its average volume over the last five sessions. Wilmar was the most heavily traded stock on the exchange by value.
The company has been hit by losses at its largely China-based oilseeds and grains business, due to rising costs and excess capacity.
Wilmar is the worst-performing stock in the benchmark index, down 31% as of Thursday’s close.
REUTERS (27 July 2012)
Hi AK,
Sounds like selling out of panic more than anything. But are you optimistic about their Q2-2012 financial release coming Aug?
Hi Ray,
Wilmar is still a company with growing profits in spite of the crushing business in China doing badly. By the management's own admission, that business is not going to improve anytime soon.
I cannot see how well or how badly the company's Q2 or 2H is going to be. However, I get the feeling that Mr. Market has priced in much more than just expectations of losses in its crushing business which is 25% of the company's business.
Anyway, I might regret it but I bought some at $3.24 today. ;p
Hi AK, I just read an article that palm oil price is likely to see a major bottom in the last quarter of this year. So i will be keeping a very watchful eye on Wilmar or should i say all commodity related companies ;P
Hi Kyran,
Let me guess, Mistry?
I guess you are all prepared to scoop cheap palm oil related stocks. ;)
haha i read it on my iphone's Bloomberg app. Very impt app to me to keep me abreast of financial news.
I already bought a few lots of Noble, so yes Wilmar is one that I am keeping a BIG watchful eye on.
Hi Kyran,
I don't have an iPhone. I think I read Mistry's dire warning in the newspapers. ;p
Nothing stays low forever although low could go lower.
Wilmar is a leader in its field and, surely, the demand for agricultural commodities is not going the way of the Dodo. As long as Wilmar remains well mananged, it will emerge stronger in time.
Hi Ak,
I guess Wilmar might closed below 2.80 tomorrow. Viewing at such disastrous 2Q results. I have sold all my units today with a huge lost with average purchase price of 3.75 in anticipation of 50% drop in profit. I gave up. With the totally unexpected 70% drop in profit, I guess it might end up close below 2.50 till next quarter. I will start accumulating it again at 2.50. What do you think? Still holding on? Thanks in advance.
Casey.
Hi Casey,
The 70% drop in quarterly net profit is a year on year comparison. Wilmar's first half net profit fell some 52%, year on year. So, it is not disastrous although the magitude is bigger than the expected 50+% decline.
The oilseed crushing business accounted for a quarter of its profits in better times. These profits are not likely to return in the next few years. Having said this, Wilmar remains a profitable market leader with other businesses which could do quite well in the same period of time.
As far as technicals go, they are still very weak. I know some are calling me stubborn for not cutting loss. I could be that but cutting loss after its share price tested a new low just a few sessions ago does not sit well with me. This is especially so when I see a positive divergence on the MACD as it formed a higher low when share price formed a lower low. Of course, positive divergences could fail especially when momentum remains in negative territory.
Has Mr. Market punished Wilmar's share price enough for the poor performance? Has the bad news been factored in?
I believe it is only natural for Wilmar's share price to take a beating tomorrow. This would make a big paper loss even bigger for me but I am still comfortable with the size of my long position in Wilmar and will not be cutting. I am developing a morbid fascination here.
For years, I have avoided investing in companies like Wilmar, Olam and Noble, believing that they are too complex and their gearing too high for me to understand. This experience with Wilmar is a good lesson for me in more ways than one. :)
Hi AK,
Except Wilmar, the other two have done reasonably well to me, especially Noble, I think they have great strategists to consistently pump in great business ideas and very well managed. As an investor, I normally invest in counters which have prices that is closed to their asset value and have a long term sustainable earning per share of at least 10% of the share price. Only Noble, fits well with my selection criteria, not Olam and Wilmar. Even if Noble experiencing losses, it is normally temporary due to its business nature. It is normally a good time to own Noble when bad news breakout. The same can not be said on Wilmar due to is manufacturing business. Olam recent price performance reminds me of Hyflux and Cosco, 一厢情愿的价钱. I never think that Wilmar's previous profit performance is sustainable nor it could be hit so badly. I only have myself to blame for not sticking to my strategy. However, I think the worst is over for Wilmar, but it may not be sunny days in the next two quarters. Based on the my own selection criteria, I will only return to Wilmar if the price is below 2.50. AK do you mind to share your fair value for Wilmar?
i'm in for the long haul too.... but its always savvy to buy later if the trend is still downwards.
Hopefully it turn upwards soon :(
bulls pushed the price back up after it touch a low of 3.04.
as it stands, a hammer may form. I think it is bullish from here on
Hi Casey,
That makes the two of us. If only I had stuck to my strategy of investing only in what I know best, I would be doing a bit better now.
Fair value for Wilmar? That would be quite subjective and also require a more thorough understanding of its businesses. It is much harder to value as compared to REITs.
For me, it is TA that would guide my actions now and Fibo lines show me that $2.80 is a strong support if it should be tested.
Hi Ray,
Indeed, in a downtrend, we want to buy when the selling has dried up. Of course, this takes a discerning eye to tell. :)
Share price touched the 123.6% Fibo line at $3.04. The other supports are at $2.95, $2.87 and $2.80.
Like you said, a candlestick with a long lower wick formed today on the back of massive volume. This suggests that Mr. Market is buying the gap down. We will need confirmation, of course.
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