Wilmar International - CIMB Research 2017-05-14: Listing Of China Operations To Create Value

Wilmar International - CIMB Research 2017-05-14: Listing Of China Operations To Create Value WILMAR INTERNATIONAL LIMITED F34.SI

Wilmar International - Listing Of China Operations To Create Value

  • We are positive on plans to list its China operations on Shanghai stock exchange.
  • The listing exercise may take at least 18 months.
  • The listing will help the group to unlock value of this business.
  • We estimate its China operations could be worth US$9.1bn to US$13.7bn.
  • Maintain Add call with a higher SOP-based target price of S$4.52.

Key takeaways from 1Q17 results briefing 

  • The main takeaways from 1Q17 results briefing are: 
    1. plans to list its China businesses in Shanghai will take at least 18 months; 
    2. valuation is not the only consideration for the listing plans; 
    3. separate listing will allow better appreciation of its consumer products brands and prospects of its China operations; 
    4. positive on flour and rice businesses in China; and 
    5. cautious on sugar earnings due to lower sugar prices.

Listing plan could take at least 18 months 

  • Wilmar revealed that it is carrying out an internal restructuring of its China operations with the possibility of listing this unit in Shanghai. It had previously considered listing this unit in Hong Kong in 2009. 
  • It is reviving the listing plan but changed the venue as the Chinese government is encouraging foreign companies to list in China. 
  • It is currently restructuring its operations and has appointed a banker to work on the potential listing, which may require at least 18 months to complete.

Background on its China operations 

  • Wilmar is currently the largest edible oils refiner, specialty fats and oleochemicals manufacturer as well as one of the leading oilseeds crusher, producer of branded consumer pack oils, rice and flour in China. 
  • On top of these, it is one of the largest flour and rice miller and has the largest market share of about 45% in consumer pack edible oils in China. We gathered that its China operations contributed around 40-50% of the group’s historical earnings.

Positive on listing plans 

  • We are positive on the group’s plan to list its China operations as it will help the group to unlock the value of this business, which offers strong growth prospects due to rising demand for quality food products in the country. 
  • We expect the group to fetch better valuations for its assets in China via a separate listing as we believe Chinese investors will be able to better appreciate the group’s strong distribution channel and consumer products brands in cooking oils, flour and rice in China.

Potential valuations for its China operations 

  • The group revealed that it will consider offering 10% new shares and the selling price for the first tranche of IPO shares will not exceed 23x the prospective earnings of the business. It plans to use the proceeds raised to grow its businesses, pare down borrowings and/or increase dividend payout. 
  • Based on average P/E of comparables, we estimate the business could potentially fetch 15-23x P/E, which would value the China operations at around US$9.1bn to US$13.7bn.

Maintain Add with higher target price of S$4.52 

  • We project 2Q17 results to be stronger yoy on better oilseeds and grains contribution but lower qoq on lower crush margin and CPO prices. 
  • We maintain our forecasts but raise SOP-based TP to S$4.52 to reflect its plans to list its China operations. 
  • Maintain Add due to its attractive valuations and plans to list China assets. 
  • Key downside risk is untimely purchase of raw materials and calling off plans to list its China businesses.

Ivy NG Lee Fang CFA CIMB Research | http://research.itradecimb.com/ 2017-05-14
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 4.52 Up 3.930