12/05/2010 (Agri Money) - Wilmar's strong pace of earnings growth slowed to a trickle in the first three months of the year, as relatively firm palm oil prices slashed margins at its core merchandising and processing business.

The world's largest listed palm oil company, which is 10.4% owned by US agribusiness giant Archer Daniels Midland, reported earnings up 5.6% at $401.4m for the quarter and would have suffered a decline were it not for lower taxation rates.

Profits before tax fell by 3.8%.

The decline from double-digit growth Wilmar has typically reflected a return in margins to more normal levels, after they were swollen last year by tumbling crop prices.

'Less competitive pricing'
The palm and laurics unit, while helped by higher volumes to retain its status as the group's biggest business by revenues, suffered a 30% slide to $150.9m in pre-tax profits.

"Margins contracted due to tight supply and relatively less competitive pricing of palm oil to edible oils," Wilmar said.

Profits in the consumer products division slumped by 41%, against despite higher revenues, as it swallowed higher raw material costs.

However, profits from oilseeds and grain processing rose by 7.6% to $182.0m helped by new mills and "continuing strong demand" for their products, making the business Wilmar's most profitable.

'Not much upside'
Kuok Khoon Hong, the Wilmar chairman and chief executive, said the group had performed "reasonably well", and was "positive" on prospects for Asian economies, in particular China, India and Indonesia, despite the first signs of monetary tightening after a period of loose credit.

"The group… will continue to leverage on its to leverage on its well-established presence in these markets for growth," Mr Kuok said.

However, investors were less enthusiastic, sending Wilmar shares 1.4% lower to Sing$6.45 in late trade in Singapore.

Citigroup analyst Penny Yaw, rating the stock a "sell", said: "Although we like Wilmar for its integrated business model and strong management, we think there is not much upside from the current share price as the stock has already captured most of the positives."