Wilmar International - DBS Research 2019-07-15: Yihai Kerry Arawana Holdings China IPO Listing Status


Wilmar International - Yihai Kerry Arawana Holdings China IPO Listing Status

  • China Securities Regulatory Commission (CRSC) has accepted Yihai Kerry Arawana Holdings’ (YKA) application; currently pending approval.
  • Subject to regulatory approval, listing may take place in 4Q19; IPO proceeds to be used for capital expenditure.
  • YKA’s FY18 NPAT accounts for c.60% of Wilmar International’s core net profit.
  • Proposed listing may unlock shareholder value for Wilmar International - upside risk to our current Target Price of S$3.86; Maintain BUY on Wilmar International.

What’s New

YKA’s listing application awaiting approval of China Securities Regulatory Commission (CSRC).

  • Wilmar International (SGX:F34)’s 99.99% owned subsidiary Yihai Kerry Arawana Holdings (YKA)’s application to list on the Shenzhen Stock Exchange has been accepted by CSRC and is currently awaiting approval by the regulator.
  • Subject to CSRC’s approval of Wilmar International’s listing application, the plan is to list c.10% of YKA shares on the Shenzhen Stock Exchange with no secondary offering.

YKA is one of China’s companies in FY18.

  • YKA is one of China’s largest agribusiness and food processing companies, involved in processing and sales of kitchen food, feed ingredients and oleochemicals in China. Wilmar International’s flagship brand Arawana has been the leading edible oil in China since the 1990s, with the largest market share of about 45% in consumer pack edible oils.
  • According to CSRC filings, YKA’s net profit of c.US$0.8bn (RMB5.51bn) in FY18 formed c.60% of Wilmar International’s FY18 core net profit of US$1.3bn and contributed c.50% to YKA’s core net profit of c.US$120m in 1Q19.

Subject to regulatory proceeds to.

  • During Wilmar International’s 1Q19 analyst stated that the plan is to believe Wilmar International is on track for this pending regulatory approval of its application.
  • IPO proceeds will be used to fund YKA’s capital expenditure which we expect to be largely in China. According to Wilmar International, the proposed listing will increase Wilmar International’s market visibility and awareness in China, and boost growth in its China operations.

Proposed listing may Target Price.

  • The proposed listing of its China operations held under YKA should provide upside risk to our target price as we have not factored in the listing in our current valuation methodology.
  • Switching our valuation methodology to sum of parts (SOTP) would likely result a higher Target Price due to a higher multiple attached to its China’s operations, which is currently included under oilseeds and grains segment.
  • YKA’s 1Q19 net profit of US$120m was largely in line with our forecast. This represents an annualised net profit of US$480m vs. our oilseeds and grains estimate of US$499m in 2019.

William Simadiputra DBS Group Research | Rui Wen LIM DBS Research | https://www.dbsvickers.com/ 2019-07-15
SGX Stock Analyst Report BUY MAINTAIN BUY 3.860 SAME 3.860