Wilmar International - CGS-CIMB Research 2020-08-07: On Track To List Yihai Kerry Arawana On ChiNext


Wilmar International - On Track To List Yihai Kerry Arawana On ChiNext

  • Wilmar International is a step closer to listing Yihai Kerry Arawana Holdings after getting nod from listing committee.
  • We are optimistic about the group fetching at least 23x P/E for Yihai Kerry Arawana Holdings given its strong 1H20 performance and current rally in the ChiNext market.
  • We raise our SOP-based Target Price to S$5.53 and retain our ADD rating.

YKA receives listing clearance, will submit for final approval

  • Wilmar International (SGX:F34)’s China unit, Yihai Kerry Arawana Holdings (YKA), has received confirmation from the listing committee of Shenzhen Stock Exchange ChiNext Board that it meets the listing and disclosure requirements. It will next make a submission to the China Securities Regulatory Commission (CSRC) for final registration approval for listing.
  • Wilmar added that although listing clearance from the committee has been obtained, there is no certainty that the proposed listing will proceed as it requires CSRC approval.

On track to list YKA in 2H20

  • We are positive on this development as the CSRC approval will be the last hurdle to its proposal to list YKA. In our view, Wilmar appears to be on track to list YKA in 2H20. We believe this could further catalyse its share price as the listing will help unlock value for the group’s operations in China, which make up around 60% of the group’s earnings.
  • Wilmar has recently published updated financial information on YKA, which revealed a significant jump of 131% in YKA’s 1H20 recurring net profit to Rmb2,863m (US$401m) despite movement restrictions in China due to the emergence of COVID-19 during that period. The strong set of 1H20 results bodes well for the upcoming listing as it could boost investor interest and drive the IPO pricing for YKA.

How YKA listing could affect Wilmar’s share price

  • We gathered that Wilmar will be using YKA’s FY19 recurring earnings, which 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 is likely to be based on investor demand. We are of the view that YKA is likely to fetch at least 23x P/E for its IPO pricing given the strong 1H20 results and its leadership position in China’s growing food sector.
  • Should the IPO (which makes up more than 60% of Wilmar’s FY19 earnings) fetch a high P/E valuation, it will have a positive impact on Wilmar's share price, which is trading at 20x FY20 P/E.
  • On top of this, a special dividend could be in store following the listing of YKA.
  • See Fig2 in PDF report attached below for more on why YKA’s listing could lead to re-rating of Wilmar's share price.

Raising target price of Wilmar to S$5.53

  • We raise our Wilmar's SOP-based target price to S$5.53 as we believe YKA is likely to fetch higher valuations for its IPO given its strong 1H results and the rally in ChiNext where YKA plans to list. The ChiNext index registered a YTD return of 56.5% to close at 2,814 points yesterday and the average 12-month trailing P/E valuation for the market is around 65x. The implied P/E for YKA at our revised target price is 26x.
  • See Wilmar Share Price; Wilmar Target Price; Wilmar Analyst Reports; Wilmar Dividend History; Wilmar Announcements; Wilmar Latest News.
  • The recent run-up in Wilmar's share price suggests that investors have start pricing in the potential listing.
  • Key upside lies in better-than-expected valuations for YKA upon listing.
  • Reiterate ADD.

Ivy NG Lee Fang CFA CGS-CIMB Research | Nagulan RAVI CGS-CIMB Research | https://www.cgs-cimb.com 2020-08-07
SGX Stock Analyst Report ADD MAINTAIN ADD 5.53 UP 4.580