Wilmar International - CGS-CIMB Research 2021-08-16: Emerging Catalysts For 2H21


Wilmar International - Emerging Catalysts For 2H21

  • We see the listing of Adani Wilmar Ltd (AWL) and better 2H21 results as share price catalysts.
  • Wilmar International (SGX:F34) said it is exploring various options to unlock value for shareholders.
  • Reiterate ADD. Wilmar International’s market cap of US$20.6bn is at a significant discount to the value of its 90% stake (worth S$55bn) in YKA.

We spotted two short-term and one long-term catalysts for Wilmar

  • We see emerging catalysts for Wilmar's share price in 2H21, mainly:
    • the potential listing of Adani Wilmar Ltd (AWL); and
    • better 2H21F results.
  • In the medium term, we see its relentless pursuit to unlock shareholder value as a key catalyst for the stock. We estimate the listing of AWL (target for 4Q21F) to boost Wilmar International’s value by S$0.33 to S$0.52 per share.
  • We expect Wilmar International to deliver a stronger 2H21 performance, driven by seasonal factors, as well as better performance from palm, sugar and soybean crush segments.
  • In the medium term, we believe that Wilmar International’s pursuit to unlock value for shareholders is unlikely to stop at the listing of AWL. If the market is unable to appreciate the value of its parts in the medium to long term, the potential options it could consider for value unlocking include share buy-backs, distribution of its listed entities’ shares back to shareholders, and/or listing of other parts of the group.

Catalyst 1: Plan to list 50%-owned Adani Wilmar Ltd (AWL)

  • On 2 Aug, Wilmar announced that it has filed the draft red herring prospectus for its 50%-owned AWL. The IPO is likely to comprise new equity shares of up to 10% of the group’s total shares.
  • The listing could value AWL at a market cap of between US$4bn and US$6bn; this will place the implied value of Wilmar International’s 45% stake in AWL (post dilution) at US$1.8bn-2.7bn, against its share of value of investment in AWL in its books of US$226m as at 31 Dec 2020. This suggests potential gain of US$1.6bn to US$2.5bn (or S$0.33 to S$0.52 per share) for Wilmar International.

Catalyst 2: Better 2H21F earnings

  • Wilmar International is optimistic of better 2H21F earnings, driven by higher palm products’ processing margin, higher CPO price, higher profit from sugar mills due to better sugar prices, and better crushing volumes and profit margins (which are likely to offset the lower profit margin from its consumer products).
  • We project Wilmar International to deliver a core net profit of US$861m in 2H21F (vs. US$732m in 1H21 and US$850m in 2H20).

Catalyst 3: Bridging the gap between YKA and Wilmar valuations

Ivy NG Lee Fang CFA CGS-CIMB Research | Nagulan RAVI CGS-CIMB Research | https://www.cgs-cimb.com 2021-08-16
SGX Stock Analyst Report ADD MAINTAIN ADD 6.150 SAME 6.150