Wilmar International (WIL SP) - DBS Research 2017-09-04: Takes 50% Stake In Aalst Chocolate

Wilmar International (WIL SP) - DBS Vickers 2017-09-04: Takes 50% Stake In Aalst Chocolate WILMAR INTERNATIONAL LIMITED F34.SI

Wilmar International (WIL SP) - Takes 50% Stake In Aalst Chocolate

  • Wilmar acquires 50% equity stake in Aalst Chocolate, a Singapore-based manufacturer of premium chocolate.
  • Acquisition done via purchase of shares from existing shareholders and subscription of new shares.
  • Financial terms not disclosed, likely to be funded internally.
  • Synergies with Wilmar’s sugar business, deepening Wilmar’s foothold in downstream consumer products, maintain HOLD and TP of S$3.52.

What’s New 

Sugar to chocolate. 

  • Through its wholly-owned subsidiary KOG Investments Pte Ltd, Wilmar has acquired 50% equity stake in Aalst Chocolate Pte Ltd (Aalst Chocolate), a Singapore-based manufacturer of premium chocolate. The remaining 50% stake will be held by Aalst Chocolate’s CEO and Founder Richard Lee, Co-Founder and Managing Director Connie Kwan. 
  • Aalst Chocolate is understood to be the only Singapore brand that that can produce both chocolate covertures and compounds, and currently exports over 98% of its products, supplying to customers mainly in 
    1. Industrial (confectionery, ice-cream, biscuits and bakery); and
    2. Food Service (professionals and chefs) in more than 45 countries globally. 
  • It currently owns 5 brands.

Financial details are scarce. 

  • The purchase of shares came from existing shareholders, including International Chocolate & Coca Holdings Pte Ltd, the investment vehicle of private equity firm KV Asia Capital (KV Asia), Richard Lee and Connie Kwan, as well as via the subscription of new shares. 
  • KV Asia is understood to have invested significantly in Aalst Chocolate in March 2015. The acquisition details, as well as financials of Aalst Chocolate are scarce, though we understand that Aalst Chocolate has “one of the most cutting edge” manufacturing plants in Singapore having invested ~S$40m to date. 
  • We believe the transaction will be funded internally given the strength of Wilmar’s balance sheet. As at end-2Q17, Wilmar’s adjusted debt to equity ratio stood at 0.31x with free cash flow of US$282m.

Rationale – expand business portfolio of chocolate ingredients in Asia. 

  • According to Wilmar and Aalst Chocolate, the joint venture allows both companies to further the existing supplier-customer relationship. Aalst Chocolate will be able to leverage on Wilmar’s vast manufacturing and distribution network in Asia and penetrate further into China, a rapidly growing chocolate market, and expand into new geographies. 
  • For Wilmar, this signifies its foray into a new consumer product segment - chocolate.

Our thoughts 

  • The joint venture is a natural downstream investment for Wilmar as there are likely synergies to be derived, as Wilmar’s businesses in oils and specialty fats, sugar and other raw materials, can provide ingredients essential in the chocolate business. This will help to deepen Wilmar’s foothold in the downstream consumer products, on top of its existing consumer products businesses. 
  • While we believe that there is minimal impact to Wilmar’s bottom line from the new joint venture, there may be further plans to investment in manufacturing plants in China, for instance. 
  • In the medium term, acquisition of upstream cocoa suppliers could be a possibility, to strengthen its foothold as a chocolate manufacturer and retailer across the value chain.
  • We do not expect any significant changes to our forecasts at this juncture as that the joint venture is still at an initial stage. Our thesis remains intact on our view that Wilmar will gradually extend penetration of its well-established brands via its vast distribution networks in Asia’s growing markets, deepening its foothold in the downstream consumer products business, which will lead to earnings upside potential.


Maintain Hold rating with unchanged TP of S$3.52. 

  • We employed DCF methodology (FY18F base year) to arrive at our TP of S$3.52 (WACC 7%, TG 3%). 
  • Our TP offers 6% upside from current level and 2.7% dividend yield.

William SIMADIPUTRA DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2017-09-04
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 3.520 Same 3.520