China's stimulus package won't give Wilmar a boost: OCBC

Weak crush margins in China are likely to persist over the next few quarters.

Wilmar International Limited (WIL) recently saw its share price hit a new 52-week low of S$3.41 on 14 Jun 2012, down 32% from 30 Dec 2011.

According to OCBC Research team, this is likely still spooked by the continued uncertainty over the global economic outlook and also weak economic data coming out of China.

At its 52-week low, the stock is down 27% since the release of its disappointing 1Q12 results on 10 May; it is also 43% off its 52-week high of S$5.99.

Since then, the stock has managed to put on a rebound of just 3% recently. OCBC said this this likely on hopes that the Chinese government would introduce more measures to simulate the sluggish domestic economy.

OCBC however cautioned that recent economic data suggests that the economic growth is slowing much faster than expected, leading many to expect Beijing to introduce measures to revitalize the economy.

"Industry experts do not expect China to dish out a massive stimulus package, which it did to the tune of RMB4t during the previous global financial crisis. Instead, the emphasis would be more on a structural overhaul of the economy; thisis also to avoid driving up inflation as was the case previously," said OCBC.

Moreover, crush margins still a concern.

"With inflation likely to remain tame, WIL should also have slightly more leeway to raise the ASPs (average selling prices) of its cooking oil products in China. And given the recent dip in CPO (crude palm oil), margins at its Consumer Pack division should continue to recover. Having said that, channel checks suggest that weak crush margins in China are likely to persist over the next few quarters," noted OCBC.

Previously, management also said it expects the over-capacity situation to persist in the next two to three years.

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