Wilmar International - CIMB Research 2018-02-26: More Reasons To Like The Stock

Wilmar International - CIMB Research 2018-02-26: More Reasons To Like The Stock WILMAR INTERNATIONAL LIMITED F34.SI

Wilmar International - More Reasons To Like The Stock

  • We are more positive on Wilmar post its briefing, with three positive takeaways.
  • Firstly, the crush margin in China remains strong, which is positive for 1Q18 earnings.
  • The listing of its China operations is on track and our estimates reveal it could be worth as much as US$16bn, more than Wilmar’s current market cap of US$15bn.
  • Lastly, the group could pay more dividends following the listing of Wilmar China.
  • Maintain ADD call with an unchanged SOP-based target price of S$4.10.

Key takeaways from 4Q17 results briefing 

  • The main takeaways from Wilmar’s 4Q17 results briefing are:
    1. FY17 dividend of S$0.10 (dividend payout of 40%) represents the highest dividend payout since listing,
    2. the crush margin in China remains strong so far in 1Q18,
    3. it is on track to list its China operations in 2019, which may lead to a better dividend payout,
    4. the group is most positive on the potential growth of its rice and flour businesses in China in 2018, and
    5. it does not plan to make property a core business in the short to medium term.

Additional key points to note on 4Q results 

  • Wilmar revealed that, stripping out the one-off deferred tax gain in 4Q16, its core net profit grew 2.1% y-o-y to US$374m. The sugar division would have performed better in 4Q if not for the timing of the new Australian sugar marketing programme, which will result in a certain portion of sugar produced by the mill being sold in 1H18. This led to a 60%/42% yoy drop in sugar sales volumes from its mill in 4Q17/FY17.
  • We project better earnings in 1Q18 We are optimistic that the group will deliver good 1Q18 numbers as we gather that
    1. crush margins in China have remained strong so far in 2018,
    2. consumer products are expected to benefit from seasonal demand during the Chinese Spring Festival in midFeb, and
    3. sugar contribution could improve due to the absence of impairment of US$30.6m in 4Q17 and the sale of carried-over sugar inventories from its mills in Australia from 4Q17.
  • China operations could be valued at up to US$15.7bn Wilmar said that it remains on track to list its China operations in Shanghai in 2019. The group has competed an internal restructuring for the listing. It indicated that
    1. its China operations made up around 65% of FY17 earnings,
    2. it is likely to offer 10% new shares during the IPO, and
    3. the max P/E allowed for new listing in Shanghai is 23x. 
  • Given our estimate for the business’s FY17 net profit of US$680m, Wilmar China could be worth US$15.7bn, based on 23x P/E, 5% higher than its current market cap of US$15bn.

Other interesting points from the briefing 

  • The group revealed that it does not anticipate any major stumbling block to the listing at this juncture. Wilmar also said that it has submitted a preliminary expression of interest for Indian vegetable oil refiner Ruchi Soya’s assets. 
  • Associates contribution soared to a new record high of US$228m in 2017 as the group started to reap the fruit of its investments in these joint ventures. The group is most bullish on its rice and flour businesses in China due to synergies with existing products and potential value-add.

Maintain ADD with unchanged target price of S$4.10 

  • We are more positive following the briefing as we have learned that the crush margins have remained strong so far in 2018 and the listing of Wilmar China is on track. 
  • Maintain ADD due to its attractive valuations (0.91x P/BV), 13.7x FY18F P/E (below the historical 3-year average P/E of 14.2x) and plans to list its China assets. Its final dividend of S$0.07 per share translates into a near-term dividend yield of 2.2%. 
  • Key downside risks include untimely purchases of raw materials and failure to list its China businesses.

Ivy NG Lee Fang CFA CIMB Research | http://research.itradecimb.com/ 2018-02-26
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 4.100 Same 4.100