Wilmar International - UOB Kay Hian 2019-06-20: Another Step Closer To China A-Share Listing

WILMAR INTERNATIONAL LIMITED (SGX:F34) | SGinvestors.io WILMAR INTERNATIONAL LIMITED (SGX:F34)

Wilmar International - Another Step Closer To China A-Share Listing

  • WILMAR INTERNATIONAL LIMITED (SGX:F34)’s China subsidiary Yihai Kerry (益海嘉里) had completed the guidance process required by CSRC and is on track to meet Wilmar’s target to be listed in 4Q19. This would likely make it one of the largest listed vegetable oil and food ingredient producers by market capitalisation.
  • Current China operations contribute about 60% of group PAT. The IPO proceeds would be utilised for the expansion of wheat flour, rice milling and soybean crushing capacities in China.
  • Maintain BUY. Target price: S$3.90.



WHAT’S NEW


Wilmar’s China subsidiary on track to be listed in 4Q19.

  • Based on China Securities Regulatory Commission’s (CSRC) website, Wilmar China’s subsidiary Yihai Kerry Arawana Holdings Co (Yihai Kerry) had successfully completed the guidance process required by CSRC in three months (usual guidance process will take at least 6 to 12 months). Next, is to submit the listing application and filing of draft prospectus which is likely to be in Jul 19.
  • The official listing date would depend on when the CSRC issues an approval. Based on the guidance during the analyst briefing in May 19, the listing targeted for 4Q19.

Yihai Kerry contributed about 59% of Wilmar Group’s 2018 net profit.

  • Based on the financial summary disclosed, Yihai Kerry reported net profits of Rmb5.28b, Rmb5.52b and Rmb0.83b for 2017, 2018 and 1Q19 respectively. These make up 72%, 59% and 46% of Wilmar Group’s net profit respectively.
  • The company is likely to be the largest listed vegetable oil and food ingredient producer on China’s A-share market in terms of market capitalisation (US$12b-13b at IPO) with current shareholder equity of Rmb63.97b (or US$9.0b).

IPO proceeds to be largely utilised for expansion in China.

  • With a 10% listing, proceeds from the IPO are expected to be at around US$1.2b to US$1.3b and the bulk of the proceeds will be utilised for expansion in China. This is in line with management’s 2019 capex guidance of US$1.5b-1.6b. 2019’s capex guidance is higher than the US$1.3b and US$0.94b spent in 2017 and 2018 respectively.
  • Much of the capex has been allocated for expansion of soybean crushing, wheat flour and rice milling capacities in China. Higher allocations could go towards to rice and flour, which are just starting to see consumer purchases slowly migrating to premium brands.

Potential special dividend post China listing.

  • As the large China capex will be funded by the IPO proceeds, this will free up Wilmar’s cash flow to declare special dividends to Wilmar’s shareholders.


TOCK IMPACT


Strong market positioning in China (60% of 2018 group PAT).

  • Upon listing, Wilmar China could trade at a higher valuation than peers, given its strong market positioning in the oilseeds & grains processing segment. Its ARAWANA ( 金龙鱼 ) brand is a well-known premium household brand in China, not only for cooking oil but also for consumer pack rice, flour and dry noodles in China.
  • Wilmar is the top producer of consumer pack edible oils in China with about a 45% market share. Associate company, Luhua ( 鲁花 ) (33% stakes), is also the top peanut oil producer in China.

Building more integrated processing complex in China.

  • Based on media highlights, Yihai Kerry launched a Rmb3b investment project in Guangzhou, China involving a processing complex which consists of a soybean crushing mill, consumer pack edible oil plant, specialty fats plant, rice project, chocolate project, central kitchen project, cold chain logistics project, plastic packaging materials project, consumer experience museums and other projects.


EARNINGS REVISION/RISK


Maintain earnings forecasts.

  • We maintain our net profit forecasts of US$1.24b, $1.43b and US$1.51b for 2019-21 respectively.


VALUATION/RECOMMENDATION


Maintain BUY and target price of S$3.90.

  • This translates into 13.7x 2019F blended PE, which is slightly higher than Wilmar’s five-year mean (1-year forward PE of 13.2x). We ascribe 20x 2019F PE for the oilseeds & grains division, 15x PE for the tropical oils division, 8x PE for the sugar division and 10x PE for the other businesses.

Upside to target price

  • Upside to target price could come from higher PE or S$4.10 and S$4.25 respectively.
  • Yihai Kerry’s 2019 net profit could be a 5% impact to our SOTP valuation.





Leow Huey Chuen UOB Kay Hian Research | Singapore Research Team UOB Kay Hian | https://research.uobkayhian.com/ 2019-06-20
SGX Stock Analyst Report BUY MAINTAIN BUY 3.900 SAME 3.900



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