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Why Has Wilmar International Limited’s Stock Price Fallen By 13% Over The Past Year?

Wilmar International Limited (SGX: F34) is an agricultural company that operates through four main segments: Tropical Oils; Oilseeds and Grains; Sugar; and Others.

Over the last 12 months, the company’s stock price has fallen by 13% to S$3.05. What may have caused this?

Reasons for a decline in the Wilmar share price

There can be many reasons behind a stock’s price decline. But, the reasons can generally be classified as business-performance-related, or investor-sentiment-related.

The former deals with how a stock’s business has performed or is expected to perform. And in terms of business performance, one of the really important numbers would be the stock’s profits.

Meanwhile, the latter is about the overall mood of market participants – are investors more greedy than fearful, more pessimistic than optimistic et cetera? In general, negative emotions (fear and pessimism) tend to drag down the prices of stocks while positive emotions (greed and optimism) tend to push up stock prices.

The case with Wilmar’s share price

In Wilmar’s case, I believe both factors were at work. Here’s a table showing a condensed income statement for the agricultural giant for 2018’s first quarter:

Source: Wilmar International earnings update

We can see that Wilmar’s net profit and core net profit were both down hard despite a near-6% increase in revenue. The main culprits for the big fall in profit were the Tropical Oils and Sugar segments. In the first quarter of 2018, the Tropical Oils segment saw its pre-tax profit fall by 34% year-on-year to US$101.7 million; for the same period, the Sugar segment’s pre-tax loss widened from US$34.5 million to US$39.0 million. So, it’s clear that Wilmar’s latest business performance has been less than ideal.

In addition, I think that investors’ sentiment towards Wilmar is negatively impacted by the ongoing trade-tensions between China and the US. In Wilmar’s latest earnings update, its CEO, Kuok Khoon Hong, shared comments that highlighted how Wilmar’s business may be affected by a trade war between the two economic powerhouses (emphasis is mine):

The prospect of China imposing import tariffs on US soybeans will result in soybean prices staying volatile for the coming quarters. Even though performance of our Oilseed Crushing business will not be affected in the short term, a prolonged standoff between China and the US would affect the utilization of our crushing plants.

Nevertheless, we foresee that any negative effect will be partially mitigated by better performances from both our flour and rice businesses. In addition, with the improvements in production yields and better margins from downstream operations, the Tropical Oils segment will likely perform better in the subsequent quarters.”

With so much trade-war-related news floating in the media, I think it’s likely that investors may have developed a negative view on companies such as Wilmar that has significant exposure to cross-border import-export activities.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.