Wilmar International - CGS-CIMB Research 2020-08-11: What Has Been Priced In For Yihai Kerry Arawana Listing?

WILMAR INTERNATIONAL LIMITED (SGX:F34)

Wilmar International - What Has Been Priced In For Yihai Kerry Arawana Listing?

Wilmar International's 1H20 results appear to be above expectation due to better crush margins.
We think market has yet to fully price in the potential listing of Yihai Kerry Arawana (YKA) in 2H20.
Maintain ADD with an unchanged SOP-based Target Price of S$5.53.

Wilmar International (SGX:F34) posted a 7% q-o-q rise in its 2Q20 core net profit to US$329m. As a result, core net profit grew 49% in 1H20, driven mainly by improved performances from food products, feed and industrial segments as well as share of joint venture and associates.
The half-time results appeared to be above expectation, making up 56% of our and 53% of consensus full-year projections.
Over the past five years (excluding 2016), Wilmar International’s 1H core net profit has on average made up 35% of its average full-year core net profit of US$1.2bn.
In line with the stronger results, Wilmar group proposed a higher interim dividend of S$0.04 per share in 1H20 (vs. S$0.03 in 1H19), which represents 30% of its 1HFY20 net profit.

The key earnings driver for 1H20 was the feed and industrial products division (tropical oils, oilseeds and grains and sugar) which posted a 105% jump in pretax profit as crush margin and volume recovered from African swine fever outbreak. This was further boosted by higher sugar merchandising activities but tropical oils recorded weaker earnings.
The food products division also did well, recording a 21% y-o-y improvement in 1H20 pretax profit to US$495m as its consumer products division posted a 28.7% increase in sales volumes to 4.7m tonnes despite lockdowns in the key market it operates in, attesting to its strong distribution channel and brands.
Share of results from joint ventures and associates doubled to US$84.1m in 1H20, thanks to higher contribution from China, India and Africa. The group is cautiously optimistic that 2H performance will be satisfactory.

Wilmar’s China subsidiary, Yihai Kerry Arawana (YKA), has recently received confirmation that it meets the listing and disclosure requirements of the Shenzhen Stock Exchange Chinext Board. It now requires CSRC approval for listing. We are positive on the listing as it will help unlock value.
On top of this, YKA recently guided that it will report between a 15-30% y-o-y increase in its recurring net profit to Rmb3.3bn (US$462m) and Rmb3.8bn (US$532m) in 9MFY20. The guidance suggests that YKA’s 3Q20 net profit will be around US$61m to US$131m, weaker than 1H20’s net profit of US$401m. However, we remain positive on YKA as 9M20 growth of 15-30% is commendable given COVID-19 disruptions.

We remain positive on Wilmar due to its stellar 1H performance and plans to list YKA. At current Wilmar share price, we estimate the implied P/E for YKA is 22x which is below some of its peers. As such, we believe there is scope for a re-rating if pricing for the IPO turns out better than our current expectation.
See Wilmar Share Price; Wilmar Target Price; Wilmar Analyst Reports; Wilmar Dividend History; Wilmar Announcements; Wilmar Latest News.
Other catalysts are potential special dividend post listing of YKA and better-than-expected earnings deliveries.

Ivy NG Lee Fang CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-08-11

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