Wilmar - RHB Invest 2017-05-15: An Update On The Potential China Listing

Wilmar - RHB Invest 2017-05-15: An Update On The Potential China Listing WILMAR INTERNATIONAL LIMITED F34.SI

Wilmar - An Update On The Potential China Listing

  • During the 1Q17 results announcement, Wilmar mentioned that it is evaluating a proposed listing of its China operations. 
  • Post-analyst briefing, we note that management is pretty set on moving ahead with this listing barring any unforeseen circumstances. The listing would be done on the A-share market. The entity that would be listed would include all of Wilmar’s China operations ranging from oilseeds crushing, consumer pack to oleochemicals and specialty fats. The time horizon that management is targeting is about 18 months. 
  • We think this news is the key catalyst for its share price movement last Friday. Given that this event is still at a preliminary stage, we have not factored in the China IPO into our TP. But we think it is positive for the share price should this listing goes through. 
  • Maintain NEUTRAL with a SGD3.62 TP (4% downside).

Unlocking values in its consumer pack business. 

  • During the briefing, management was upbeat about the China IPO. Should the deal go through, management is likely to place out 10% of its new shares for the China entity to fulfil the minimum float criteria. 
  • Currently, our DCF valuation for the consumer pack business implies a 13x forward P/E. We note that all A-shares IPOs are capped at 23x P/E while the A-shares F&B players are traded at an average of 19x forward P/E. Therefore, even with a 10% dilution, we think the deal is beneficial to shareholders at this level of valuation.

Potential acquisitions after the China listing. 

  • Although Wilmar International’s (Wilmar) CEO Kuok Khoon Hong cited that he prefers growing the business greenfield rather than paying a high multiple to acquire a new business, we note that he is also very into consumer products and brands. 
  • Should the China-listed entity receive a strong valuation multiple, the group would likely use this vehicle to acquire other brands in the future.

Maintain NEUTRAL and DCF-derived TP SGD3.62. 

  • We kept our forecasts and TP unchanged at the moment as the China listing is still at a preliminary stage. 
  • Management cited that there has been a strong import of soybeans into China in recent months. While they expect soybean to still deliver positive and stable margins, we think that margins would not be as high compared to that of 1Q17.

Juliana Cai CFA RHB Invest | http://www.rhbinvest.com.sg/ 2017-05-15
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 3.620 Same 3.620