WILMAR INTERNATIONAL LIMITED (SGX:F34)
Wilmar International - A Tightrope On Reputation
Good levels of disclosure. But scope exists for more
- Wilmar International (SGX:F34)’s business as one of the world’s largest integrated staples players opens it to significant reputational as well as other ESG risks. The group has had a history of activist attacks on its palm oil operations centered on deforestation, emissions and community relations.
- On the other hand, Wilmar International has been actively addressing ESG issues with the introduction of its NDPE policy together with frameworks for environmental and social risks. While ESG disclosure levels have improved over the past 10-years, there is significant scope for more, in our view.
- Maintain BUY for Wilmar International, on valuation uplift from the IPO of its Chinese ops and structural EM staples demand.
Size, scale has benefits. But also downsides
- Wilmar International has had several attacks from activists such as Greenpeace in the past 10-year mostly centred on deforestation, destruction of high conservation value areas and local community relations – particularly in its palm oil supply chain.
- Additionally, Wilmar International depends on third parties and small holders for 60% of its palm inputs that increases risks by association. While it has a No Deforestation, No Peat, No Exploitation (NDPE) policy in place and does active monitoring of supplier acreage, the sheer scale of the operations means material execution risks exists, in our view.
Better disclosures on compliance needed
- Wilmar International’s levels of granular disclosure on its ESG performance has improved over the past 10-years, we observe. Nevertheless, there is significant scope for better disclosure especially around NDPE compliance, supplier monitoring, traceability etc.
- We also note only 54% of the Board is classified as independent and just 8% are women. This raises governance and diversity risk. Overall, we believe Wilmar International disclosure levels lag behind Western peers such as Bunge (USD45.18) and ADM (USD45.98,).
China IPO near term catalyst
- Based on our calculations, Wilmar International’s China IPO pricing implies a 2020E PE of 34.6x. If we assume a holding company and low free float discount of 20%, the PE is 27.7x.
- Roughly 60% of Wilmar International’s revenues are derived from China. Around 35% is EMs where peers trade around 18x and rest are developed markets at 13x. On this basis, Wilmar International has a 2020E implied weighted multiple of 23.5x.
- Wilmar's share price trades at 17.4x currently. Together with gearing to rising emerging market staples consumption, maintain BUY.
- See Wilmar Share Price; Wilmar Target Price; Wilmar Analyst Reports; Wilmar Dividend History; Wilmar Announcements; Wilmar Latest News.
Thilan Wickramasinghe
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2020-09-30
SGX Stock
Analyst Report
5.240
SAME
5.240
