Excerpts from Maybank KE report
Analyst: Thilan Wickramasinghe
|Potential surprises on the way? We see four areas where WIL can potentially surprise in 4Q20:
We believe, over the longer term, this may trigger further actions to unlock value such as more asset carve outs or even privatisation.
While WIL has re-rated 21% in the past 1-month, we believe significant upside exists as they execute.
Raise TP to SGD6.80. BUY.
|Better than expected operating environment
4Q20 Chinese soybean crushing margins have increased 3x QoQ to reach the highest level since records began in 2015.
Chinese hog inventories have increased 42% YoY in 2020, as it rebuilds stocks following African Swine Flu (ASF).
Nevertheless, inventories are still ~20% below pre-ASF levels.
As China’s largest soybean crusher, this should result in significant upside surprise to WIL margins in 4Q20, we believe.
In 3Q20, Management claimed hotel/restaurant demand is normalising as activities increased with COVID-19 containment.
We expect further acceleration here.
While rising food prices are a concern (UN FAO index up 18% since May 2020), but WIL claims they have been passing on the higher costs so far.
The 30% 4Q20 rise in palm oil prices may drive upside surprise for WIL’s upstream business, while the recent changes to Indonesian palm oil export taxes should positively impact its refined palm oil exports, we believe.
|Same asset. Two hugely different values
WIL’s 90% Chinese subsidiary YKA (300999 CH, CNY129.80, NR) has risen 2.2x since its IPO in Oct 20.
This means the parent is trading at a 75% discount on SGX with its other regional businesses having no implied value.
While there are advantages by the fact that the HoldCo is listed in Singapore (such as funding access), the large valuation differential may catalyse further strategies to unlock value.
Over the longer term, this may include further asset hive-offs or privatisation, we believe.
Full report here