Wilmar - OCBC Investment 2019-07-17: Proposed IPO Of Yihai Kerry Arawana Holdings

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WILMAR INTERNATIONAL LIMITED (SGX:F34)

Wilmar - Proposed IPO Of Yihai Kerry Arawana Holdings 

• Listing is pending for CSRC’s approval.
• Wilmar will retain majority control.
• Expansion in China’s operations.

Yihai Kerry Arawana (YKA) to be listed on Shenzhen Stock Exchange

• WILMAR INTERNATIONAL (SGX:F34) announced that Yihai Kerry Arawana Holdings Co., Ltd (YKA), a 99.99% owned subsidiary, submitted its IPO application to the China Securities Regulatory Commission (CSRC) for its proposed listing on the Shenzhen Stock Exchange last Friday.
• Yihai Kerry Arawana is one of the largest agribusiness and food processing companies in China, mainly engaged in the production, sales and R&D of kitchen food, feed ingredients and oleochemicals in China.
• The listing, if approved by the CSRC, will see Yihai Kerry Arawana issuing up to 54.2m shares, or about 10% of the total pro-forma share capital of Yihai Kerry Arawana after the proposed IPO. There will not be any secondary offering.

Funding for capital expenditure

• Wilmar will retain the majority control in Yihai Kerry Arawana post listing and for the foreseeable future. Wilmar is anticipated to hold 89.99% of Yihai Kerry Arawana via its wholly owned subsidiary, Bathos Company Limited, immediately post the proposed IPO.
• The estimated net IPO proceeds of CNY 13.9b is intended to fund Yihai Kerry Arawana’s capital expenditure requirements, focusing on fixed assets investment projects in the kitchen food industry which is the also core business of Yihai Kerry Arawana, representing ~60% of Yihai Kerry Arawana’s revenue in FY18.

Fair value increased to S$4.26

• According to the prospectus, Yihai Kerry Arawana’s reported 4% y-o-y growth in net profit to CNY 5.5b (~US$0.8b) in FY18, contributing ~63% of Wilmar’s net profit of US$1.3b in FY18. The proposed IPO is aimed to expand and grow Wilmar’s operations in China by promoting the brand’s visibility and awareness among existing and potential customer and investors.
• In view of Yihai Kerry Arawana’s IPO, we attach a higher valuation to Wilmar’s oilseeds & grains segment (PER of 19X). Based on the SOTP valuation methodology, our fair value estimate consequently increases from S$3.66 to S$4.26.
• Upgrade from Hold to BUY.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2019-07-17

SGX Stock Analyst Report BUY UPGRADE HOLD 4.26 UP 3.660