Wilmar International - CGS-CIMB Research 2020-05-13: Why Wilmar Is Excelling Despite COVID-19


Wilmar International - Why Wilmar Is Excelling Despite COVID-19

  • Wilmar International chalked up strong growth in consumer products during COVID-19.
  • Its positive take on prospects suggests upside to our earnings projections.
  • Price correction leaves plenty of upside should YKA's listing materialise in 2H20 at P/E of 23x or higher.
  • Reiterate ADD and Target Price of S$4.58.

Sensing positive vibes from Wilmar's 1Q20 briefing

  • We are more positive post Wilmar International (SGX:F34)'s 1Q20 results briefing as we sense that 2Q performances should stay resilient despite COVID-19. The outbreak has also provided the group a rare opportunity to grow its consumer food products segment (mainly rice, cooking oil and flour) thanks to its strategically located large scale processing facilities and strong distribution channel across key markets.
  • Although the group is cautiously optimistic on its 2Q results, Wilmar International guided that most divisions are expected to continue to do well or recover from a weak 1Q, except for its plantation and sugar milling divisions.
  • Also, it is on track to list its China operations in 2H20 and could potentially fetch 23x to 40x P/E. We expect this exercise to re-rate Wilmar's share price.

Why growth in its consumer products is a positive indicator?

  • In 1Q20, consumer products share of food products sales volumes grew to 46% from 34% a year ago. We are positive on this achievement as it will allow Wilmar International to expand its earnings base. This is because consumer products profit margin is more lucrative, or 10x higher than the profit margin for its medium pack and bulk products under the food products segment.
  • We roughly estimate that every 1m tonne increase in sales volumes for consumer products could potentially allow Wilmar International to add US$50m pretax profit (3% of net profit). It sold 2.8m tonnes of consumer products in 1Q20.

Why YKA listing target for 2H20 could fetch better valuations?

  • Wilmar International revealed that the listing of YKA on ChiNext (Shenzhen Stock Exchange) is now targeted for 2H20 instead of 3Q20 as COVID-19 has delayed the process. It will be using YKA’s FY19 recurring earnings, which it earlier revealed is 6% higher than FY18’s, to price its IPO.
  • The IPO pricing will no longer be capped at max 23x historical P/E and could instead be based on investor demand. It mentioned that the P/E valuations of some comparables listed in the same stock exchange is as high as 40x despite COVID-19 concerns. Should the IPO (which makes up more than 60% of Wilmar International’s FY19 earnings) fetch a high P/E valuation, it will have a positive impact on Wilmar's share price, which is trading at only 15x P/E.
  • A special dividend could potentially be in store post listing of YKA.

Potential upside to our earnings forecasts by 10% or more?

Ivy NG Lee Fang CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-05-13
SGX Stock Analyst Report ADD MAINTAIN ADD 4.580 SAME 4.580