Wilmar International - Maybank Kim Eng 2019-07-17: Value Discovery


Wilmar International - Value Discovery

A China listing should uplift valuations

  • We estimate a Chinese listing can potentially unlock as much as a 23% higher valuation for Wilmar International (SGX:F34) - consumer staple peers in China trade at an 80% PE premium. The group is likely to raise at least USD2.1bn to support new capacity in oilseeds and grains processing, according to its prospectus lodged with China’s securities regulator – CSRC.
  • If the Singapore ParentCo pays out an equivalent of half the raised amount as capex savings, the 2020E potential dividend yield could rise to 9% (vs. 2.7% now).
  • Rising hog production in China should improve earnings visibility, while Wilmar International’s gearing towards emerging market, staples consumption should provide a counter-cyclical buffer from current trade-war related volatility.
  • BUY.

A step closer

  • The CSRC has accepted the listing application from Yihai Kerry Arawana Holding Co’s (YKA) – the holding company for Wilmar International’s Chinese assets –to list in the Shenzhen Stock Exchange. The listing process will take another 3- 12 months depending on the IPO backlog and market conditions, according to Management.
  • Nevertheless, according to their prospectus, ~60% of Wilmar International’s earnings are from China. This should trade at a higher valuation, in our view. The consumer staples sub-index of the CSI300 trade at 24.2x forward PE compared to Wilmar International’s 13.5x.
  • New funding should ease Wilmar International’s capex in China. A 70% saving in 2020E capex by the ParentCo, can potentially result in a SGD0.22 special DPS, we estimate.

Better outlook for operational headwinds

  • In a Reuters report, China African Swine Flu (ASF) recovering. Together with a farming, this bodes well for Wilmar International’s Chinese soybean crushing volumes and margins, raising upside risks to earnings.

Maintain BUY

  • With 90% of scarce production, processing and these markets, Wilmar International’s staples consumption product mix should provide a counter-cyclical buffer to slower growth from the ongoing US-China trade & tech war.
  • Trading at 1x PB, maintain BUY.
  • Our Target Price of SGD4.21 is based on blended multi-stage DCF (WACC 5.3%, 1% terminal) and global peer basket (17.5x 2020 target PE).

Thilan Wickramasinghe Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-07-17
SGX Stock Analyst Report BUY MAINTAIN BUY 4.21 SAME 4.21