Wilmar International - CGS-CIMB Research 2020-09-24: Read Through From IPO Pricing Of Yihai Kerry Arawana


Wilmar International - Read Through From IPO Pricing Of Yihai Kerry Arawana

  • Wilmar International (SGX:F34)’s subsidiary Yihai Kerry Arawana (YKA) has set its China IPO pricing at Rmb25.7 per share.
  • This translates into a historical P/E of 31.12x (above our base case of 26x).
  • Wilmar International remains an ADD. It offers a cheaper and more liquid entry to YKA.

Yihai Kerry Arawana (YKA) sets IPO pricing at Rmb25.7 per share

  • Wilmar International announced that its 99.9%-held subsidiary Yihai Kerry Arawana (YKA) has jointly determined the issue price for its proposed listing at Rmb25.70 per YKA share, with its sponsor and joint lead underwriters. The price translates into a price-to-earnings multiple of 31.12x, based on YKA’s financial year 2019 recurring net profit and enlarged post-IPO share capital.
  • According to Wilmar International, the average price-to-earnings multiple of other listed companies in the same industry as YKA — such as agricultural and food processing industry group C13 — for the immediate preceding month was 41.86x.
  • Wilmar International says the issue price was based on investor demand and took into consideration the industry that YKA is engaged in, the comparable valuations of other listed companies in the same industry, the YKA group’s fund-raising requirements and the joint lead underwriters’ underwriting risk.

Our read-through to Wilmar’s share price

  • Through its IPO, Yihai Kerry Arawana (YKA) expects to raise approximately Rmb13.9bn (US$2.06bn) based on its issue price and the total number of new shares (being 10% of YKA’s issued share capital on an enlarged basis) to be issued for the proposed listing. This implies the potential market capitalisation of YKA upon listing at its IPO price to be Rmb139bn (US$20.6bn) against Wilmar International’s current market capitalisation of US$20.3bn.
  • Stripping out Wilmar International’s 90% stake in YKA (post listing) at IPO price, it suggests that investors are paying only US$1.6bn for the rest of Wilmar International’s assets (ex-YKA), which generated a net profit of US$593m in 2019, based on our estimates (2019 P/E of 3x).
  • Putting it another way, we estimate the implied P/E for YKA at Wilmar's current share price to be 17.8x which is at a 43% discount to the IPO price (values ex-YKA business at 14x P/E).

Wilmar offers cheaper entry into YKA, as well as higher liquidity

  • Strategic investors, including state-owned funds, sovereign wealth funds, and insurance companies such as GIC Pte Ltd., People’s Daily Media and Advertising Company, China Oil Asset Management, and China Life Insurance, have been allocated 30% of Yihai Kerry Arawana's IPO shares in total. See PDF report attached below for the complete list of YKA's strategic investors.
  • The shares allotted will be subject to a one-year moratorium on transfer starting from the first trading date. The proposed listing is slated to take place by mid-Oct 2020. Based on the above, the free float (ex-strategic investors) for YKA will only be 7%, which is significantly lower than Wilmar International’s 30%.
  • See Wilmar Share Price; Wilmar Target Price; Wilmar Analyst Reports; Wilmar Dividend History; Wilmar Announcements; Wilmar Latest News.
  • From a valuation perspective, Wilmar International trades at a forward P/E of 16x against YKA’s IPO pricing of 31x.
  • We reiterate our ADD call for Wilmar International with an SOP-based Target Price of S$5.53 (which values YKA at P/E of 26x to allow for holding co discount).
  • Key downside risks to our call are delay or termination of the YKA IPO and weaker-than-expected crushing/refining margins.

Ivy NG Lee Fang CFA CGS-CIMB Research | Nagulan RAVI CGS-CIMB Research | https://www.cgs-cimb.com 2020-09-24
SGX Stock Analyst Report ADD MAINTAIN ADD 5.530 SAME 5.530