Wilmar International - OCBC Investment 2020-11-03: Record 3Q Results


Wilmar International - Record 3Q Results

  • Special dividend of ~15% of the total IPO proceeds.
  • Strong volume growth in Food Products and Feed & Industrial Products.
  • Expecting strong 4Q for Wilmar.

Wilmar's record 3Q core PATMI since listing

  • Wilmar (SGX:F34)’s 3Q20 results came in above ours and market expectations. 3Q20 revenue rose 19.3% y-o-y to US$13.3b while PATMI grew 20.0% y-o-y to US$536.6m, driven by higher contributions across all key segments, improved crushing activities due to the recovery from the ASF outbreak in China, higher sugar prices and stronger contributions from its associates and JVs as countries exit from lockdowns.

Special dividend of 6.5 cents

  • Wilmar announced that a special dividend of approximately 15% of the total IPO proceeds i.e. US$0.31b will be declared in 2021. Management guided that the final dividend for FY20 will be minimum 16.0 cents per share, including the special dividend of 6.5 cents, backed by Wilmar’s strong performance and sees a ‘fair chance’ for a record earnings this year.
  • We believe that management would probably wish to save more for capex spending to expand its penetration in China. Management added that they would consider listing other parts of Wilmar’s business to unlock value should it be appropriate and positive to the group.

Valuation is undemanding

  • While YKA’s share price rose 101% from its issue price of RMB 25.7/share to RMB 51.65/share since listing, Wilmar's share price saw a correction of 9% over the same period. We believe that the correction could be due to profit taking reactions/selling on news as some investors might believe that the listing of YKA was the sole catalyst for Wilmar.
  • Management added that it could also be due to the potential overhang from ADM’s placement of shares but highlighted that ADM’s sales of stakes were solely for the company’s own capital requirement and were not related to any negative performance or news regarding Wilmar.
  • Wilmar’s current market cap of US$20b is ~half of YKA’s market cap at US$41b.
  • See Wilmar Share Price; Wilmar Target Price; Wilmar Analyst Reports; Wilmar Dividend History; Wilmar Announcements; Wilmar Latest News.
  • Wilmar's share price is trading at forward P/E of 14.3x against YKA’s forward P/E of 35.9x based on Bloomberg estimates. We believe that the valuation gap is too large and Wilmar’s business is undervalued given its strong earnings and growth prospects. We expect a strong 4Q given the continued recovery in CPO and sugar prices, improved crushed activities, and economic recovery as lockdown measures eased in most of the regions where the Group operates.
  • We also believe that the listing of YKA could provide long-term benefits to Wilmar as it allows Wilmar to penetrate further and grow at a faster pace in China. We retain our fair value estimate at S$5.40.

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2020-11-03
SGX Stock Analyst Report BUY MAINTAIN BUY 5.400 SAME 5.400