Wilmar International (WIL SP) - UOB Kay Hian 2017-05-15: Potential Listing In China To Create Positive Momentum

Wilmar International (WIL SP) - UOB Kay Hian 2017-05-15: Potential Listing In China To Create Positive Momentum WILMAR INTERNATIONAL LIMITED F34.SI

Wilmar International (WIL SP) - Potential Listing In China To Create Positive Momentum

  • We are positive on the potential listing of its China operations as it could help to unlock the group value. The listing also paves the way for more aggressive expansion in China in branded consumer pack business and oilseeds crushing after the lifting of restriction on foreign investment in oilseed crushing. 
  • We are positive on this and are valuing its China operation at higher 2018F PE valuation of 20x (previously 15x). 
  • Upgrade to BUY with a revised target price of S$4.40.


Upgrade to BUY with higher SOTP-based target price of S$4.40. 

  • We attended Wilmar’s 1Q17 analyst briefing last Friday. Key topics discussed were: 
    1. the potential listing of its China operations, and 
    2. outlook for its key businesses. 
  • We are positive on the potential listing of its China operations as it could help to unlock group value and also result in stable long-term growth of its key businesses. 
  • Despite Wilmar’s share price surging 9.6% on Friday (spurred by the positive catalyst of potential listing in China), we still see more upside from the listing. Thus, we upgrade Wilmar to BUY (from HOLD) with higher SOTP-based target price of S$4.40.

Proposed listing of its China operations is timely. 

  • Key factors driving the potential listing are: 
    1. China relaxing restrictions on foreign investment and making it easier for overseas companies to list on domestic markets, 
    2. the opportunity to ride on China’s government lifting restrictions on foreign investment in the oilseed crushing market by utilising the listing proceeds to accelerate its expansion plan in China, and 
    3. a listing in China could also enhance Wilmar’s brand name in the domestic market. The expansion plan comes in time to ride on rising consumer demand for quality food. China consumers are now more conscious on the quality of food products due to the increase in disposable income and change in lifestyle. The potential listing could enhance Wilmar’s brand reputation in the China market and could benefit its future earnings.

Potential total return of 4.5-27.4%. 

  • Our base-case scenario target price of S$4.40 is pegged at higher 2018F 20x PE (vs 15x previously) for Oilseeds & Grain and roll forward the other segments’ valuations to 2018F earnings. 
  • We believe that higher ascribed PE is justifiable as its close peers are trading at average 2018F 19x PE. If listing PE is maintained at 15x, target price would be S$3.90 (-11% to current target price), but we think Wilmar’s China operation could be at higher valuation with a listing on the A-share market. If we assume that the listing is at a maximum 23x PE, target price would be at S$4.60 (+7% to current target price). 
  • Additional catalyst could come if some of the listing proceeds are utilised as special dividends (potential yield of 0.8-2.4%). 
  • All in all, it implies a total return (share price upside and special dividend yield) of 4.5-27.4% from current share price.


  • Outlook for upcoming quarters:  
    • Tropical oils – expect FFB production to recover gradually in coming quarters. 2Q17 production is expected to be higher qoq and yoy. Management is planning to replant 5,000ha each in both Malaysia and Indonesia which will partly affect the production growth in 2017.
    • Oilseeds & grains – Soybean crushing margins are expected to be capped by massive soybean imports into China in the coming months. 2Q17 crushing margin could potentially be lower qoq, but is expected to remain stable. This will be partly mitigated by better performance from consumer products segment as the sales volume is expected to recover in 2Q17 on the seasonal reduction in 1Q17.
    • Sugar – Cyclone Debbie is not expected to affect Wilmar’s sugar production significantly. The low sugar prices will affect contribution from sugar milling and processing, but this will be compensated by higher sales volume.


  • No change to our earnings forecasts. We maintain our EPS forecasts of 20.6 US cents, 21.6 US cents and 22.7 US cents for 2017-19 respectively.


  • Upgrade to BUY (from HOLD) with higher SOTP-based target price of S$4.40. This translates into 14.0x blended 2018F PE, which is slightly higher than its 5-year mean (1- year forward PE of 13.2x). We pegged Oilseeds & Grain to a higher PE of 20x vs 15x previously to factor in the potential listing, the assumption that 100% of this division is from its China operation, and roll forward the other segment to 2018F earnings.

More upside to target price if the listing PE is higher than our expectation of 20x 2018F PE. 

  • In our current SOTP-based target price, we are assuming listing PE of 20x which is below the maximum PE of 23x allowed by the authorities. If we assume the listing is at 23x maximum PE, target price would be at S$4.60.

Another upside to target price could come from larger-than-expected earnings from China operation. 

  • We are assuming that 100% of oilseeds and grains contribution is from China, and are not taking into consideration other non–Oilseeds & Grains businesses such as oleochemical and contribution from JV and associates in China.


  • The potential listing of its China operations. As more details of its China operations are made available for the listing process, investors might see greater value in Wilmar.
  • Stronger-than-expected earnings growth.

Singapore Research Team UOB Kay Hian | http://research.uobkayhian.com/ 2017-05-15
UOB Kay Hian SGX Stock Analyst Report BUY Upgrade HOLD 4.40 Up 3.500