Wilmar International - Maybank Kim Eng 2020-10-15: Value Dislocated? Divergent Price Action Between Wilmar & Yihai Kerry Arawana Unjustified

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

Wilmar International - Value Dislocated? Divergent Price Action Between Wilmar & Yihai Kerry Arawana Unjustified


Divergent price action between Wilmar & Yihai Kerry Arawana (YKA) unjustified

  • Wilmar International's share price fell -6% despite a +118% opening of Yihai Kerry Arawana (YKA) – its 90% owned Chinese subsidiary. We believe the downward price action is unjustified.
  • From a market cap differential perspective this implies that Wilmar International’s non-Chinese businesses (44% of revenue) have no value. It also ignores potential for special dividends.
  • Operationally, we expect the group to deliver 33% y-o-y 2021E EPS growth from improving crush margins in China and demand recovery from India and Indonesia.
  • We maintain our Wilmar International target price of SGD5.24 for now pending the 3Q20 trading update on 30 Oct and are BUYers on dips.





A gap too wide

  • Wilmar International’s current market cap of SGD28bn is 50% lower than the value of its holding in YKA (300999 CH, 益海嘉里金龙鱼粮油食品股份有限公司). This discount implies that its operations in Indonesia, India, Europe and Africa etc. have no value.
  • Particularly in Indonesia and India, Wilmar International has strong market share in edible oils and palm oil refining.
  • Separately, in 2021E, we estimate Wilmar International may spend USD1.6bn in capex. Assuming 60% (USD1bn) is spent in China using IPO proceeds, it frees up cash at Wilmar International for special dividends.
  • An USD1bn special dividend translates to SGD0.22 DPS – implying a 5% special yield. See Wilmar's dividend history.


Operational recovery underway

  • Wilmar International is geared towards the earlier COVID-19 recovery cycle in China. In 2Q20, Wilmar International’s food product segment volumes increased 20% y-o-y and we expect the momentum to strengthen in 2H, as hotels, restaurants re-open.
  • Crushing margins, which have been dampened due to African Swine Flu are improving from lower input costs and farmers rebuilding stocks (1H Feed & Industrial Products PBT/t +88% y-o-y). Together with better demand conditions in markets outside China, we expects Wilmar International's EPS to see positive momentum going in to 2021E.

BUY on weakness






Thilan Wickramasinghe Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-10-15
SGX Stock Analyst Report BUY MAINTAIN BUY 5.240 SAME 5.240



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