Wilmar - RHB Invest 2017-05-12: China Operations IPO Back On The Cards

Wilmar - RHB Invest 2017-05-12: China Operations IPO Back On The Cards WILMAR INTERNATIONAL LIMITED F34.SI

Wilmar - China Operations IPO Back On The Cards

  • Wilmar’s 1Q17 core PATMI of USD313m (+40% YoY) was in line with our estimates. It was mainly driven by a strong performance in the tropical oils and soybean crushing businesses. 
  • Moving forward, we believe that contribution from tropical oils would fall on lower CPO prices. This would however be offset by the stable soybean crush margins. 
  • Management is once again contemplating on the listing of its China operations. Should this goes through, it would be positive on its share price. 
  • We maintain NEUTRAL at the moment with an unchanged TP of SGD3.62 (4% upside).

Hail to the soybeans. 

  • We believe Wilmar International’s (Wilmar) China soybean crushing business did extremely well in 1Q17 as its total oilseeds and grains processing business (soybean crushing and consumer pack) delivered 27% YoY growth in pretax profit despite a sharp drop in consumer pack volumes (-17% YoY) and marginal increase in soybean crushed volumes (+4% YoY). 
  • This is in line with our expectations as we believe lower soybean prices would translate into higher crushing margins as highlighted in our previous report Wilmar : Positives And Negatives From Bumper Soybean Crops
  • Although soybean prices have crept up since April to USD9.65/bushel from USD9.35/bushel, we believe that the current prices remain low enough for the company to generate a positive and stable crush margin in 2Q17.

Consumer pack affected by the early Chinese New Year. 

  • Consumer pack volumes fell 17% during 1Q17. Management attributed this to the early Chinese New Year this year. We expect the consumer pack performance to normalised from 2Q17 onwards. 
  • We also note that the flour business continued to show positive growth.

Second attempt at China IPO. 

  • Separate listing of its China operations is once again back on the cards. Considering the high multiples of China companies, we believe a separate listing is positive to the share price. 
  • We also think this is a good time for a separate listing given the following factors:
    1. Turnaround of soybean crush margins given the low commodity prices; 
    2. A steadily growing consumer pack business with positive contribution from flour; 
    3. China’s plan to make it easier for overseas companies to list; 
    4. National Development and Reform Commission’s (NDRC) lifting of the restriction for foreign investment in the oilseeds industry.

Tropical oils to be affected by lower CPO prices from here on. 

  • 1Q17’s tropical oil pretax profit grew 20% YoY. Since CPO prices began falling in mid- Feb 2017, we believe this segment would show weaker results in 2Q17. 
  • Nevertheless, we think this would be offset by better margins in the soybean business.

Maintain NEUTRAL and a SOP-derived SGD3.62 TP. 

  • We keep our forecasts and TP unchanged at the moment. There would be an analyst briefing on 12 May 2017. 
  • We await a further update of its plans to list the China operations.

Juliana Cai CFA RHB Invest | http://www.rhbinvest.com.sg/ 2017-05-12
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 3.620 Same 3.620