Wilmar International - CGS-CIMB Research 2019-07-15: One Step Closer To Listing Its China Business Yihai Kerry Arawana


Wilmar International - One Step Closer To Listing Its China Business Yihai Kerry Arawana

  • Application to list subsidiary Yihai Kerry Arawana on the Shenzhen stock exchange accepted.
  • We are positive on this as the group appears on track to list Yihai Kerry Arawana by 4Q19F.
  • We see potential upside to our Target Price to S$5.54, if Yihai Kerry Arawana list at 23x P/E.

Receives China regulator’s acceptance of application to list

  • WILMAR INTERNATIONAL (SGX:F34) announced that the China Securities Regulatory Commission (CSRC) has accepted Yihai Kerry Arawana Holdings (益海嘉里金龙鱼粮油食品股份有限公司)'s application to list on the Shenzhen Stock Exchange.
  • The listing, if approved by the regulator, will see Yihai Kerry Arawana issuing new shares amounting to about 10% of its total pro forma share capital after the initial public offering (IPO) and there will not be any secondary offering. Wilmar will retain majority control in Yihai Kerry Arawana with an expected 89.99% stake post-IPO.
  • The net IPO proceeds are for the purpose of funding Yihai Kerry Arawana’s capital expenditure requirements.

Listing China value

  • Yihai Kerry Arawana is one of the largest agribusiness and food processing companies in China. Its business includes the processing and sale of kitchen food, feed ingredients and oleochemicals in China.
  • The proposed IPO is Wilmar’s China customers, investors and the public in China in the food. The Proposed IPO to unlock shareholder Wilmar.

on this think Arawana as 4Q19F

  • We are surprise by Wilmar’s plan to list Yihai Kerry Arawana as has the intention to China 2017. However, the market may be slightly surprise by its plans to list in Shenzhen instead of Shanghai Stock Exchange.
  • Overall, we are positive on this news as it suggests the group is one step closer to achieve its target to list its Chinese operations by the end this year. Yihai Kerry Arawana posted net profit after MI of RMB5.13bn (US$769m) in 2018 and RMB0.87bn (US$129.9m) in 1Q19, according to its prospectus.

Potential valuations for Yihai Kerry Arawana

  • We project the listing of Yihai Kerry Arawana to be a key re-rating catalyst for Wilmar as it will help to unlock value for the group.
  • From the prospectus, we gather that Yihai Kerry Arawana's net profit is closer to the low end of our net profit band estimate of US$783m published on 22 Feb 2019. Based on this, it would roughly place potential market cap valuations for Yihai Kerry Arawana from US$12.3bn to US$17.7bn. Our current Target Price of S$3.96 assumes Yihai Kerry Arawana trades at roughly 16x FY18 earnings and the rest of the business at 12x.

Potential to Price, maintain.

  • There is potential upside to our Target Price if Yihai Kerry Arawana can garner up to a max P/E allowed for new listing in Shenzhen of 23x, based on historical earnings. This could raise our Target Price for Wilmar to as high as S$5.54 per share.
  • We are keeping our ADD rating and Target Price pending details on the listing. See attached PDF report for Wilmar's SOP valuation details.
  • Yihai Kerry Arawana's listing falling through is a key risk to our call.

Ivy NG Lee Fang CFA CGS-CIMB Research | https://research.itradecimb.com/ 2019-07-15
SGX Stock Analyst Report ADD MAINTAIN ADD 3.960 SAME 3.960