Wilmar International - Maybank Kim Eng 2020-02-23: Visibility Remains Limited


Wilmar International - Visibility Remains Limited

IPO timing & Covid-19 creates near term uncertainty

  • Wilmar International (SGX:F34)’s 2019 NPAT came well ahead of MKE/Street expectations supported by a strong performance in Tropical Oils, y-o-y improvement in Oilseeds & Grains from higher crushing margins and contributions from non-operating items, including investment securities gains.
  • While the Wilmar’s food staples focus should provide it with some immunity against the Covid-19 epidemic in China, the difficulties it was facing on animal feed from ASF are unlikely to disappear near term.
  • A prolonged Covid-19 outbreak may impact raw material sourcing, labour and supply chains. Separately, the timing of its Chinese IPO is currently ambiguous. As a result, we prefer to maintain HOLD with new Target Price of SGD4.37 until better clarity arise.

Stronger outlook for Tropical Oils…

  • Expected inventory tightness for palm oil, together with higher Indonesian bio-diesel mandates, may support improved Tropical Oil revenues in 2020E. However, we believe the strong 4Q19 results where segment PBT/MT was 81% higher than the past 8-quarters may have been helped by directional trading profits. Sustainability of this need to be watched.

…not so much for Oileeds & Grains

  • Segment PBT/MT improved 62% y-o-y from better crush margins and rising mix of rice and flour consumer pack contribution. Management expects to triple processing capacity in this segment in the next 3-years. Wilmar’ existing Chinese crushing plants are back at 80-90% utilization following the Covid-19 outbreak and raw material supply chains are functioning.
  • Structurally, Wilmar is well placed to benefit from China’s long term trend of demand for better food safety and shift towards quality. However, in the near term, a prolonged Covid-19 outbreak and lingering African Swine Flu (ASF) impacting hog feed demand adds material uncertainty, in our view.

Uncertainty remains. Maintain Neutral

  • Management states the proposed IPO of their China business is on track, but Covid-19 disruptions and planned stock market reforms in the Mainland may cause some delays.
  • We have raised 2020-21E NPAT by 2-3% on better Tropical Oils margins. We raise our blended DCF (WACC 5.3%, 1% terminal growth) and global peer PE (target PE of 17.5x at latest prices) target price to SGD4.37 (from SGD4.21).
  • Given IPO timing delays and uncertainty of Covid-19 and ASF resolutions in the near term, we maintain HOLD.
  • See Wilmar Share Price; Wilmar Target Price; Wilmar Analyst Reports; Wilmar Dividend History; Wilmar Announcements; Wilmar Latest News.

Thilan Wickramasinghe Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-02-23
SGX Stock Analyst Report HOLD MAINTAIN HOLD 4.37 UP 4.210