Wilmar International - Maybank Kim Eng 2020-11-02: Wind In Its Sails

WILMAR INTERNATIONAL LIMITED (SGX:F34)

Wilmar International - Wind In Its Sails

Wilmar International (SGX:F34) reported a strong 3Q20 PAT that was well ahead of Street & MKE. This was driven by both volume and margin recovery in China where COVID-19 and ASF are easing. Other key markets – such as India and Indonesia – are expected see improved demand in 2021E.
We estimate Wilmar's positive earnings momentum to carry through to 2021E.

While the special dividend announced after successfully listing YKA is lower than expected, there are likely to be further catalysts going forward including share buybacks and additional carve outs and listings.
We have raised our Wilmar's target price to S$5.40. With 34% upside, maintain BUY.

Wilmar's 3Q20 core-PAT increased 20% y-o-y and 30% q-o-q. Total volumes increased 16% y-o-y and EBITDA/ton increased 3% y-o-y. Restaurant/Hotels demand normalising in China and improved crushing margins as farmers restock swine herds following African Swine Flu are key drivers.
We have raised Wilmar's 2020E-2022E PAT by 1-16% to reflect improving conditions.

Despite YKA (300999 CH) – which generates ~60% of group revenues - trading 79% higher from its IPO, Wilmar’s Singapore market cap is 50% lower.
The announcement of a S$0.065 special-DPS (15% of IPO proceeds) is disappointing – given the parent’s potential for savings on capex funding. Nevertheless, we believe a high final dividend is potentially possible underpinned by the strong recovery in 2H20. We estimate a 50% payout ratio (c. 45% 2019) plus the special dividend should deliver a yield of 7.3%.
Additionally, Management claims they are considering share buy backs to support the current share price. Management is also not discounting carve outs of other high growth segments such as India and Indonesia going forward, which may unlock further value, in our view.

See Wilmar Share Price; Wilmar Target Price; Wilmar Analyst Reports; Wilmar Dividend History; Wilmar Announcements; Wilmar Latest News.
We have changed our peer group valuation methodology to include YKA together with a weighting for revenue contribution between China, Developed Markets and Emerging Markets. We have also increased the peer weighting to 30% (c.20%) in our blended DCF (WACC 5.3%, 1% terminal growth) and peer PE (target PE of 18.7x) to reach a new Target Price of S$5.40 for Wilmar. This implies a 2021E target PE of 16x – 14% lower than peers.
Maintain BUY.

Thilan Wickramasinghe Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-11-02

SGX Stock Analyst Report BUY MAINTAIN BUY 5.40 UP 5.240