2Q09 results mostly in line. Wilmar reported its 2Q09 results last Friday; revenue was down 27.0% YoY at US$5,712.3m, but net profit rose 22.7% to US$407.2m. According to management, the fall in revenue was due to lower commodities prices vs. the same period last year. But favourable margins in its Palm & Laurics and Consumer Products, together with better performance by Plantation & Palm Oil Mills, contributed to the strong results.

On a sequential basis, revenue rose 15.2%, which was 9.9% ahead of our estimate, while earnings rose 7.2%, about 0.5% below our forecast. One reason for the earnings shortfall was the decline in gross margin from 16.5% in 1Q09 to 12.3% in 2Q09, although still above the 11.6% seen in 2Q08; Wilmar is probably still facing some lag in passing on rising raw material prices to customers. For the half year, revenue fell 28.7% to US$10,670.4m, meeting 42.0% of our FY09 estimate, while net profit gained 16.6% to US$787.1m, or nearly 60.8% of our full-year number. Management remains upbeat about its 2H09 prospects.

Segmental breakdown shows mixed performance. Due to the improving CPO prices, its Plantation and Palm Oil Mills put in a credible performance, up 32.2% QoQ, though still down 26.2% YoY. Its Palm and Laurics Merchandising business also grew 33.6% QoQ (down 34.8% YoY). But Consumer Products business fell 8.1% QoQ and 27.0% YoY; sale volume was down 4.1% QoQ and pre-tax profit/ton fell 17.5% QoQ, suggesting consumer demand remains anemic.

Mum on HK listing for China Ops. As Wilmar has just submitted the listing application to the HKSE for approval, it is understandably mum on the issue. As a recap, Wilmar plans to issue up to 30% of its China operations and retain Wilmar China as a subsidiary; media reports pegged the IPO at around US$3.0b for a listing late this year or early next year. In our earlier report, we noted that based on its estimated US$500m bottomline contribution, the US$3b flotation size is not an issue, assuming a valuation of 20x and a divestment of 30%. As of FY08, assets in China amounted to US$6.5b, or nearly 40% of its total assets.

Raising fair value to S$7.28. We are raising our FY09 and FY10 earnings estimates by 18.9% and 14.4%, respectively, to reflect its better profitability. This in turn improves our fair value from S$5.78 to S$7.28, still based on 20x blended FY09/FY10 PER. Maintain BUY.