Wilmar International - UOB Kay Hian 2021-03-26: Another Value-Unlocking Exercise On The Cards? Potential IPO Of Adani Wilmar

WILMAR INTERNATIONAL LIMITED (SGX:F34)

Wilmar International - Another Value-Unlocking Exercise On The Cards?

Wilmar’s JV in India, Adani Wilmar (AWL) is reportedly in the midst of exploring its IPO. This is not a surprise and it is positive for Wilmar to unlock shareholder value. However, the impact may not be as great compared with the listing of YKA as AWL’s contribution is estimated to be less than 3% of total PBT. Based on a P/E of 18x to 20x, it suggests potential listing value of US$1.69b-1.86b.
Maintain BUY on Wilmar. Target price: S$6.40.

Based on a recent media report, Adani Wilmar (AWL), the 50:50 JV between Adani Enterprises and Wilmar International (SGX:F34) is looking to raise funds by selling new shares and shares held by its JV partners. This does not come as a surprise as management did indicate earlier that it was looking at possible listings of its other subsidiaries following the successful listing of Yihai Kerry Arawana (YKA) in Oct 20.

We view this positively as unlocking of shareholder value. For a foreign JV, if the listing happens, it would be on the National Stock Exchange of India (NSE), and the initial public offer could start with 10% of its total shares out, and increase to 25% within three years from listing.
For a comparison, the 15 stocks under the NSE NIFTY FMCG Index are trading at an average 2020 P/E of 42x (P/E range from 17x to 72x), while its closest peer Ruchi Soya Industries (RSI IN) was trading within 13x to 20x P/E before it got into financial difficulties.
Applying the higher P/E range of 18x to 20x for AWL given it has a better profit margin compared with RSI, suggesting a potential listing value of US$1.69b-1.86b. This would translate into much higher value than the investment value of US$226.7m as stated in the Wilmar's 2020 annual report.

Based on Wilmar’s 2020 annual report, AWL reported a stellar net profit growth of 45% to US$93.3m while revenue grew 7.1% y-o-y (US$4.57b vs 2019: US$4.21b). We believe the margins expansion in 2020 was largely driven by higher sales volume for its premium consumer packs which also command better margins.

Adani Wilmar (AWL) is the largest edible oils refiner and consumer pack producer in India. It has expanded into rice and flour milling in recent years and is accelerating its expansion in these sectors as they are complementary businesses to edible oils and have good growth potential. AWL aims to be a major player in the agri and food business in India. It is also increasing refining and specialty fats capacities in existing and new sites.
AWL’s top consumer pack oil brand Fortune has a market share of 20% in India. Besides consumer packs, AWL offers industrial/bulk products such as bakery fats, castor oil derivatives, oleo-chemicals and soy products.

We maintain our Wilmar's earnings forecasts for 2021/22/23 of core net profits of US$1.66b, US$1.78b and US$1.95b respectively.
2023 could potentially see better growth with new capacity coming on-stream in China, with mainly large integrated plants that could give better margins on the back of an integrated model, economies of scale and proximity to feedstocks/end markets.

Maintain BUY on Wilmar with a target price of S$6.40. Our target price is based on 2021F EPS and reflects a blended 26x 2021F P/E for China operations and blended 11x P/E for non-China operations.
The proposed final and special dividend of S$0.155 will go ex on 23 Apr 21. It will be payable on 6 May 21.
See

Leow Huay Chuen UOB Kay Hian Research | Jacquelyn Yow Hui Li UOB Kay Hian | https://research.uobkayhian.com/ 2021-03-26

SGX Stock Analyst Report BUY MAINTAIN BUY 6.400 SAME 6.400