Wilmar International - CGS-CIMB Research 2020-09-16: Yihai Kerry Arawana Gets Green Light For China Listing

WILMAR INTERNATIONAL LIMITED (SGX:F34) | SGinvestors.io WILMAR INTERNATIONAL LIMITED (SGX:F34)

Wilmar International - Yihai Kerry Arawana Gets Green Light For China Listing

  • Wilmar International (SGX:F34)’s subsidiary Yihai Kerry Arawana Holdings (YKA) has received final registration approval for listing on SZSE ChiNext Board. The listing could take place by mid-Oct 2020. We are positive on this as the listing of YKA will help unlock value for the group’s assets in China and catalyse Wilmar's share price.
  • Market could be underestimating YKA’s potential value as the implied P/E for YKA at Wilmar International’s current price is 19.4x, against its comparable peers’ of 38x.



Yihai Kerry Arawana (YKA) received final registration approval for listing

  • Wilmar International announced that its 99.99%-owned subsidiary Yihai Kerry Arawana Holdings (YKA) has received final registration approval for listing on the Shenzhen Stock Exchange SZSE ChiNext Board from the China Securities Regulatory Commission (CSRC).


YKA IPO entails issuance of new shares; listing expected by mid-Oct

  • The listing will entail the issuance of new YKA shares (IPO), accounting for not less than 10% of YKA’s issued share capital on an enlarged basis. Strategic investors, which include mainly state-owned funds, sovereign wealth funds and insurance companies, have been identified to subscribe for approximately 30% of the IPO shares.
  • The final subscription size by the strategic investors and the composition of the strategic investors are still subject to final confirmation by the regulatory authorities. Based on the usual IPO timeline, it is expected that the listing will take place by mid-Oct 2020, subject to market conditions.


Why YKA listing could catalyse Wilmar’s share price

  • We are positive on this as the approval will allow Wilmar to proceed with the listing of YKA. We believe this could further catalyse Wilmar's 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.
  • The next event that investors will be watching out for is the pricing of the IPO. The IPO pricing will be based on investor demand and YKA’s 2019 recurring earnings of Rmb4.5bn.
  • Wilmar International revealed in its earlier briefing that the average P/E valuations of comparables listed in the same stock exchange category is 38x. Should YKA’s IPO fetch a 38x P/E valuation, we estimate the market cap for YKA to be around US$24.3bn, higher than Wilmar International’s current market cap of US$20.1bn.


Implied P/E for YKA at current Wilmar share price is only 19.4x

  • Based on our estimates, if YKA is valued at P/Es of between 23x and 38x, its potential market capitalisation should be between US$14.7bn and US$24.3bn. We value Wilmar International's remaining business (ex-YKA) at 12x-16x to arrive at a valuation of between US$7.4bn and US$9.9bn. Combining these two parts, we estimate Wilmar's market cap to be in the range of US$22.1bn to US$34.2bn (or S$4.81 to S$7.43 per share), which is higher than Wilmar's current share price of S$4.30 per share.
  • Assuming Wilmar International (ex-YKA) is valued at 12x P/E, we estimate the implied P/E for YKA at Wilmar International’s current share price to be just 19.4x.

Reiterate ADD, with an unchanged Target Price of S$5.53

  • Wilmar's share price corrected from its YTD peak of S$4.86 on 19 Aug, due to concerns of a short-term overhang on Wilmar International’s shares from the placement of its shares by its second largest shareholder, ADM.
  • Despite the near-term setbacks, we remain positive on Wilmar International due to its favourable earnings prospects and our view that market could be underestimating YKA’s potential value. These coupled with a potential special dividend post-listing of YKA are the key reasons why we continue to reiterate our ADD with an unchanged SOP-based Target Price of S$5.53.
  • See Wilmar Share Price; Wilmar Target Price; Wilmar Analyst Reports; Wilmar Dividend History; Wilmar Announcements; Wilmar Latest News.
  • Key risks to our call are delays in YKA's listing, lower-than-expected processing margins from its key divisions, and further share placement by major shareholders at a discount to market price.





Ivy NG Lee Fang CFA CGS-CIMB Research | Nagulan RAVI CGS-CIMB Research | https://www.cgs-cimb.com 2020-09-16
SGX Stock Analyst Report ADD MAINTAIN ADD 5.530 SAME 5.530



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