Wilmar International - RHB Invest 2020-08-13: China Still The Main Story; Maintain BUY


Wilmar International - China Still The Main Story; Maintain BUY

  • We maintain our positive view on Wilmar (SGX:F34) post its analyst briefing. With Yihai Kerry’s China listing in its final lap – awaiting approval from China Securities Regulatory Commission – management now expects the IPO to be completed by end-September. As the market has now, by and large, priced the Yihai Kerry listing at 22-23x PE, we believe the performance of Yihai Kerry post-IPO will create another upside leg for investors.
  • Reiterate BUY, SGD5.45 Target Price, 14% upside with c.3% FY20F yield.

More clarity on Wilmar’s IPO and pricing.

  • According to management, the IPO price is based on the historical P/E, while peers are trading at a c.38x FY19 P/E mean. A valuation of c.30x FY19 P/E for Yihai Kerry’s IPO, thus, sounds plausible. We expect Yihai Kerry to rerate to at least c.35x forward P/E post-IPO, in line with the peer average.
  • Wilmar expects to raise c.CNY13.8bn from the IPO, which will translate into c.SGD0.43/share. A portion of the proceeds would be distributed as special dividends. We estimate the special dividend at SGD0.10/share after the IPO.

9M20 profit guidance for Yihai Kerry deemed as conservative.

  • Earlier, Wilmar announced announced that Yihai Kerry is expected to record a 15-30% recurring PATMI growth for 9M20F. This translates to a 3Q20 recurring PATMI of USD61-131m for its China entity. During the briefing, management clarified that this guidance is conservative. It remains positive on the group’s 2H20 outlook.

Business outlook.

  • Management expects the super-normal margins for oilseeds crushing to be maintained for another few months, on low cost inventories and the rising demand for feed and oil. Consumer pack volumes in China also continue to chart positive y-o-y growth into 2H20, as some of its new products gained traction during the lockdown.
  • Furthermore, demand for medium and bulk packs from the hotel, restaurant and catering (HORECA) industry should also improve from 2H20 and in FY21F, as more countries ease their restrictions on movement.
  • Improvement in CPO and sugar prices should also support earnings for its plantation and sugar milling segments.

We lift FY20F earnings by 12% on the stellar 1H20 results.

Juliana Cai RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-08-13
SGX Stock Analyst Report BUY MAINTAIN BUY 5.450 SAME 5.450