Wilmar profit lags forecasts

SINGAPORE (Reuters) - Wilmar (WLIL.SI), the world's biggest listed palm oil firm, posted its first quarterly earnings decline in four years, joining other global commodity firms whose margins have been squeezed by tight edible oil supply.

Wilmar's disappointing 15 percent decline in second-quarter profit on Friday came after U.S. group Bunge (BG.N) cut its full-year earnings guidance by as much as 40 percent and Hong Kong-based Noble's (NOBG.SI) quarterly profit tumbled 65 percent.

"The decline in margins this year is because of stronger raw material prices," said DBS Vickers analyst Ben Santoso. "In the palm oil market, the supply has been tight, while, for soybean, some farmers have been retaining their output."

Margins were exceptionally high last year because of the global economic slowdown which pushed down raw material costs, but margins may recover in the second half as edible oil supply improves, analysts said.

A forecast by the U.S. Department of Agriculture published on Thursday about record soybean yields that will push the country's harvest to the largest on record, could help ease the soybean prices in the later part of this year.

Wilmar, which has a market value of $29 billion, earned $344 million for the quarter ended June, its lowest profit in two years. That was down from $407 million earned last year and lagged analysts forecasts for a profit of $417 million.

The company said second-quarter net profit was also affected by a negative change in valuation of $41.7 million in convertible bonds as its share price slumped.

Wilmar also reiterated it was still in talks to buy a minority stake in a small Indonesian palm oil plantation Kencana Agri Ltd (KCAL.SI). Sources had told Reuters that Wilmar plans to buy a 20 percent stake in Kencana.

The stake-purchase attempt comes as Indonesia plans to impose a two-year moratorium on new permits to clear natural forest from 2011 which could lead to consolidation of the palm oil industry.

Its shares fell as much as 2.7 percent on Friday morning, before cutting the losses to be down 1.8 percent at S$6.16. Around 9.2 million shares changed hands, nearly 20 percent more than the 90-day average traded volume.

The shares are down nearly 5 percent percent since the start of the year, underperforming the broader Singapore market .FTSTI which gained around 1 percent.

An investigation into the company's tax records by Indonesian authorities have weighed on the shares, analysts said.

Wilmar was set up in 1991 by its CEO Kuok Khoon Hong and Indonesian businessman Martua Sitorus. Kuok, who is ranked fourth on Forbes' Singapore rich list, is a nephew of Malaysian billionaire Robert Kuok.

The company, which has plantations in Indonesia and Malaysia as well as a number of edible oil processing facilities in China, said it remains positive on the prospects of Asian economies and is planning a major expansion into sugar.

Margins for merchandising and processing of palm oil and related products were lower due to tighter supply of crude palm oil and the uncompetitive pricing of palm oil versus other edible oils, it said in a statement. For Malaysian palm oil prices click.

"The Street will embark on a series of earnings downgrades in the range of 10-20 percent over the next couple of months," said UBS analyst Andreas Bokkenheuser, who has a "buy" call on Wilmar with a target price of S$8.00. Wilmar's second-quarter margins were 5.6 percent, below its yearly forecast of 7.5 percent, he said.

Wilmar's revenue climbed 18 percent to $6.8 billion for the April-June quarter.

SUGAR STRATEGY

Wilmar is making a big bet on sugar with an offer to buy Sucrogen, the sugar assets of Australian conglomerate CSR (CSR.AX) in a $1.5 billion deal.

The acquisition is expected to enable Wilmar to maintain its high growth while also speeding up the development of its 200,000 hectares of land in Indonesia's Papua, dedicated for sugar plantation.

"The group is planning a major expansion into sugar with the proposed acquisition of Sucrogen Ltd and the development of sugar in Indonesia," CEO Kuok said in a statement.

"This is expected to be a significant contributor in the long term."

(Editing by Saeed Azhar and Muralikumar Anantharaman)