Wilmar International - Maybank Kim Eng 2019-06-28: Simple Bare Necessities


Wilmar International - Simple Bare Necessities

An EM franchise with a proven execution track record

  • WILMAR INTERNATIONAL LIMITED (SGX:F34) has entrenched, market leading positions in essential food items– such as cooking oil, flour, rice, sugar & animal feed inputs – in the world’s largest & fastest growing emerging markets.
  • As a non-tech, consumer staples play with a 30-year track record, Wilmar offers shelter against uncertainty from the US-China trade war. African Swine Flu (ASF) & changing bio-diesel mandates may introduce some volatility, but also opens doors for opportunities. ESG issues, given their sizable footprint across the value chain, remain the critical known-unknown.
  • We initiate with a BUY. Our SGD4.21 DCF & peer P/E blended Target Price offers 16% upside.

Fighting won’t stop you from eating

  • Over 90% of Wilmar’s revenues are generated in emerging markets. In China, India, SE Asia & Africa, its brands have leading market shares in consumer staples. This provides a defensible moat to take advantage of rising affluence as well as increasing demand for food quality and safety. This also provides security against the US-China trade war & tech war, given Wilmar’s exposure to basic, essential food categories. Integrated origination, processing and distribution mean Wilmar is able to unlock value across their supply chains, while also providing a counter-cyclical buffer.
  • 2013-2018 volumes have grown at a 4% CAGR. We conservatively forecast just 2.6% CAGR 2018-2021E, leaving significant room for upside surprise. We estimates core-earnings to expand 7% CAGR (2018-2021E).

Opportunities amidst volatility

  • ASF should lower demand for soymeal from reduced hog production in the near term. But it is also hastening the pace of small farm consolidation & shift towards industrial feeding – which should boost volumes in the medium term.
  • Chinese demand from substituting soy oil with palm oil, higher Indonesian bio-diesel mandates and increased palm oil consumption in India should all contribute towards better margins and rising ROEs (70bps higher by 2021E).

Offering access to scarce, EM production assets

  • Wilmar’s book value comprises mostly scarce resources, including port based processing facilities, upstream plantations, operating licenses. These cannot be easily replicated. The stock is trading at long term mean P/BV despite offering an attractive entry point into long-term EM consumption. It is also a counter for recession fears, having returned 17%-175% during downturns since 2000.
  • Our Target Price of SGD4.21, which blends a multi-stage DCF (WACC 5.3%, 1% terminal growth) and a global peer basket (17.5x 2020 target P/E), offers 16% upside.
  • A potential listing of its Chinese assets in China, where peer valuations are 1.9x higher, is an upside catalyst.
  • See attached 50-page intiation coverage report in PDF for complete analysis on Wilmar.

Thilan Wickramasinghe Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-06-28
SGX Stock Analyst Report BUY INITIATE BUY 4.210 SAME 4.210