Excerpts from Maybank KE report

Analyst: Thilan Wickramasinghe

Wilmar International(WIL SP): Value dislocated?
Divergent price action between WIL & YKA unjustified
WIL fell -6% despite a +118% opening of YKA – its 90% owned Chinese subsidiary.

We believe the downward price action is unjustified.

Wilmar

Share price: 
S$4.36

Target: 
S$5.24

From a market cap differential perspective this implies that WIL’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% YoY 2021E EPS growth from improving crush margins in China and demand recovery from India and Indonesia.

We maintain our TP of SGD5.24 for now pending the 3Q20 trading update on 30 Oct and are BUYers on dips.


A gap too wide
WIL’s current market cap of SGD28bn is 50% lower than the value of its holding in YKA (300999 CH, CNY56.00, NR).

This discount implies that its operations in Indonesia, India, Europe and Africa etc. have no value.

Particularly in Indonesia and India, WIL has strong market share in edible oils and palm oil refining.

Thilan Wickramasinghe"Separately, in 2021E, we estimate WIL may spend USD1.6bn in capex.
Assuming 60% (USD1bn) is spent in China using IPO proceeds, it frees up cash at WIL for special dividends. An USD1bn special dividend translates to SGD0.22 DPS – implying a 5% special yield."

-- Thilan Wickramasinghe

Operational recovery underway
WIL is geared towards the earlier COVID-19 recovery cycle in China.

In 2Q20, WIL’s food product segment volumes increased 20% YoY and we expect the momentum to strengthen in 2H, as hotels, restaurants reopen.

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% YoY).

Together with better demand conditions in markets outside China, we expect EPS to see positive momentum going in to 2021E.

BUY on weakness
In a SGX filing, management claims it is unaware of any material information that may have resulted in the price divergence.

We believe WIL’s current price move is unjustified.

The stock is trading at 18x 2020E PE compared to an estimated 75x for YKA.

The group offers structural growth from rising emerging market consumption, strong market positioning and improving ESG credentials. BUY on weakness.


Full report here. 

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