Wilmar - OCBC Securities 2015-09-23: Recent sell-down overdone?


Wilmar: Recent sell-down overdone? 

 22% sell-down likely overdone 
 Concerns over China overly negative 
 New S$3.17 fair value 

Stock tumbled 22% after 2Q15 results 

  • Wilmar International Limited (WIL), after reporting a slightly lower-than-expected set of 2Q15 results on 5 Aug, saw its share price tumbling from an intraday high of S$3.20 on 6 Aug to an intraday low of S$2.51 on 8 Sep, or down about 22%; the stock has also fallen some 19% YTD. 
  • Besides the results, we suspect that the growing uncertainty of China’s economic growth and the recent devaluation of the CNY have also been weighing on the stock; this is not surprising since WIL derives a significant part of its revenue from China. 

How bad is China’s slowdown? 

  • No doubt China’s economy has recently hit some rough spots - in Aug for example, industrial production rose 6.1% YoY versus Bloomberg’s 6.5% consensus growth; fixed asset investment rose 10.9%, versus street’s 11.2% consensus, and was also the slowest pace in 15 years; only retail sales met expectations, growing 10.8% versus 10.6% expected by the street. 
  • However, most economists have kept their GDP growth forecast for 2015, likely on expectation that the central government would announce more pump priming measures to sustain economic growth at 7% this year. 

China concerns likely overdone 

  • Even though some economists are looking at even slower GDP growth in 2016 and 2017 of around 6.5%, others believe that the slower pace of growth is in line with the country’s switch from an industrial-driven economy to a more of a services-driven one. 
  • In fact, the China Beige Book international recently noted that global investors have adopted an excessively negative view of China’s prospects, adding these investors have a history of over-reacting to problems in China. 

2H15 likely to be satisfactory 

  • Recall that management remains cautiously optimistic that its 2H15 performance will be “satisfactory” as well; this as it expects crush margins to remain positive for the rest of the year; consumer products to continue its strong performance. 
  • Still, to account for the lower risk appetite of the market, we lower our peg to 12x blended FY15/FY16F EPS (versus 13x previously) and our fair value dips from S$3.43 to S$3.17. 
  • Maintain BUY. 

Carey Wong OCBC Securities | http://www.ocbcresearch.com/ 2015-09-23
OCBC Securities Analyst Report BUY Maintain BUY 3.17 Down 3.43