Simons Trading Research

Author: simonsg   |   Latest post: Fri, 18 Sep 2020, 6:09 PM


ComfortDelGro - Turning the Corner

Author: simonsg   |  Publish date: Fri, 18 Sep 2020, 6:09 PM

  • We turn more positive on ComfortDelGro (SGX:C52) as we see room for further relaxation of social-distancing measures in Singapore, which will aid ridership recovery.
  • We expect rail ridership to return to 90% of pre-Covid levels by FY21F. Taxi segment could return to the black by 4Q20F with moderation of taxi rebates.
  • We believe market has yet to price in ComfortDelGro’s recovery scenario (FY21F net profit: +104% y-o-y).
  • Upgrade ComfortDelGro from Hold to ADD, with a higher Target Price of S$1.70.

Loosening of Social-distancing Measures Could Increase Mobility

  • We expect public transport ridership in Singapore to return to 90% of pre-Covid levels by FY21F (Aug 2020: 55%). With new local community COVID-19 cases currently at low levels (1.1 daily new cases based on the past two week’s moving average), we see room for further relaxation of social-distancing measures, which could spur ridership recovery.
  • Beginning today, Singapore will allow tourist attractions to raise their operating capacity from 25% to 50%; capacity for outdoor shows can also be further scaled up to 250 people (from 50 previously). We also see likelihood that the government could loosen the work-from-home arrangements in the coming months, increasing mobility of Singaporeans.

Continued Moderation of Taxi Rental Rebates

  • ComfortDelGro recently announced that it will be providing a 25% rental waiver for all taxi drivers from 16 Sep to 31 Oct. Beyond that, ComfortDelGro also committed to at least match the S$10/day Special Relief Fund (SRF) that the government will be extending to drivers till Mar 2021 (previously expiring end-Sep). This reflects continued moderation in taxi rental rebates — ComfortDelGro offered a 40% rental rebate from 16 Jul to 15 Aug, and 30% from 16 Aug to 15 Sep.
  • Assuming no additional relief apart from the committed amount for SRF beyond Oct, we believe ComfortDelGro’s taxi segment could return to the black in 4Q20F.
  • According to the Straits Times, the Ministry of Manpower and Ministry of Finance are also studying the possibility of extending the Self-Employed Person Income Relief Scheme (SIRS). If realised, taxi drivers’ earnings will be better supported and ComfortDelGro’s taxi fleet size stabilised, in our view. We cut our FY20F EPS by 4.8% to factor in higher taxi rebates, but raise our FY21F EPS by 0.5% due to higher government relief.

Upgrade ComfortDelGro to ADD; Target Price Raised to S$1.70

  • Operationally, we believe the worst is over for ComfortDelGro and see net profit recovery (+104% y-o-y) in FY21F. ComfortDelGro currently trades at 14.0x CY21F P/E, or 0.6 s.d. below its historical average, which we think has yet to fully factor in the recovery scenario. We upgrade ComfortDelGro from Hold to ADD.
  • Our Target Price is lifted to S$1.70, now pegged to 15.6x FY21F P/E (ComfortDelGro’s historical average), from 13.3x (-1 s.d.) previously.
  • Potential catalysts include bus package tender wins, rail financing policy reform and earnings-accretive M&As.
  • Downside risks include a steeper taxi fleet decline, slower ridership recovery and a major resurgence of COVID-19 in geographies ComfortDelGro operates in.

Source: CGS-CIMB Research - 18 Sep 2020

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Sembcorp Industries - Need to Sharpen Focus

Author: simonsg   |  Publish date: Fri, 18 Sep 2020, 6:08 PM

  • We factor in lower equity base and fair value loss of S$1.1bn in Sembcorp Industries post Sembcorp Marine’s deconsolidation. Our NAV stands at S$1.77 and S$1.95 for FY20-21F.
  • We think clearer communication to be a ‘more focused’ group could restore investor confidence while restructuring is a medium-term catalyst.
  • Our Target Price for Sembcorp Industries is also adjusted to S$1.95, now based on 1x CY21F group P/BV, in line with the expected improved ROE of 11.8%.

Deconsolidation of Sembcorp Marine and Lower Equity Base

  • We deconsolidate Sembcorp Marine (SGX:S51) from Sembcorp Industries (SGX:U96)’s books to reflect the completion of distribution in specie and demerger. This includes the recognition of S$1.18bn fair value loss in 2H20F due to lower price of Sembcorp Marine shares (S$0.182) vs. the theoretical ex-rights price of S$0.308.
  • Our ‘new-entity’ NAV per share stands at S$1.77 for FY20F and S$1.95 for FY21F. Net gearing rises to 1.97x for FY20F due to a lower equity base.

No Direct Peers, ROE Doubles to 11.8%, Trades at 6x CY21F P/E

  • In our view, there is no direct competitor for Sembcorp Industries as it has diversified income streams (gas, power, water, renewable energy) with almost equal earnings contribution from Singapore, China, Middle East and India, whereas peers typically command a monopoly position or are single product (gas or power) companies with long-term concessions.
  • Sembcorp Industries trades at 6x CY21F P/E and CY21F P/BV of 0.67x . Over time, Sembcorp Industries should trade closer to the power/gas plays in the region of 13x P/E and 1.54x P/BV. Without Sembcorp Marine, group ROE should improve to 11.8% (vs. 5% in the past 6 years).

What Is Sustainable ROE for Utilities?

  • We estimate utilities profit of S$313m and S$335m in FY21F-22F. Assuming no further asset impairment, utilities equity base of S$3.5bn-3.8bn, should generate sustainable ROE of 8%. We believe that as the dust settles in FY21F, efforts could be stepped up in capital recycling to unlock value and improve ROE.
  • In addition, cost optimisation could also drive longer-term margin, in particular for Singapore as 10-year LNG contract of 42BBTUd with British Gas expires in 2023. By then, we expect a more balanced gas supply/demand situation as other gencos are likely to roll off the LNG contracts committed in 2008.

Clear Communication of Strategy Could Restore Investor Confidence

  • In the 1H20 results briefing, the new CEO said that post demerger of Sembcorp Marine, Sembcorp Industries continues to focus on urbanisation, electricity and carbonisation, indicating no major shift in strategy.
  • Efforts to divest small non-core assets remain, which include the recent divestment of JV Shenzhen Chiwan Sembawang Engineering (at S$29m). We think reiteration of the group’s strategy and improved disclosure could restore investor’s confidence.

No Direct Peers

  • In our view, there is no direct competitor for Sembcorp Industries as it has diversified income streams (gas, power, water, renewable energy). In terms of geographical reach, it has almost equal earnings contribution from Singapore, China, Middle East and India, whereas peers typically have a monopoly within the country or are a single product (gas or power) company with long-term concessions. Therefore, we believe clear strategy communication is key to re-educate investors.

Maintain ADD on Sembcorp Industries and Target Price Adjusted to S$1.95 on 1x P/BV

  • FY20F is a wash-out year due to impairment and fair value losses. Medium-term catalysts tment of non-performing assets or unlocking value in urban development.
  • We revise our core EPS by -2 to 9% for FY20F-22F mainly to reflect the deconsolidation of Sembcorp Marine. Our Target Price for Sembcorp Industries is reduced from S$2.27 to S$1.95, now based on 1x CY21F group P/BV, in line with the expected improved ROE of 11.8%.
  • Key risks to our call include prolonged unplanned outage of plants and unfavourable regulatory changes.

Source: CGS-CIMB Research - 18 Sep 2020

Labels: Sembcorp Ind
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Micro-Mechanics Holdings Ltd - 4QFY20 Results Beat on Resilient Demand in Semiconductor Industry

Author: simonsg   |  Publish date: Fri, 18 Sep 2020, 4:29 PM

  • Micro Mechanics' 4QFY20 (April 2020 to Jun 2020) earnings of S$3.9m (+45.5% y-o-y) brought FY20 net profit to S$14.7m (+13.1%), beating expectations on higher-than-expected capacity utilisation and gross profitability.
  • Pricing environment remains healthy going into 1HFY21. On valuation grounds, however, we maintain HOLD on Micro Mechanics with a higher target price of S$2.01.
  • Entry price: S$1.70.

Strong 4QFY20 Results

  • Micro Mechanics (SGX:5DD)’s net profit of S$3.9m brought FY20 earnings to S$14.7m, surpassing our estimates by 23%. The strong set of results stemmed from resilient demand for high-precision parts and tools, despite global lockdowns and near shutdowns of whole industries.
  • From our understanding, customers have increased their orders in 4QFY20 to stock up on their consumables inventory - hence benefitting Micro Mechanics - in case of a subsequent wave of lockdowns.

Growth Momentum in Semiconductor Segment to Continue

  • On the back of a strong recovery in the global semiconductor industry, we anticipate continued strength going into the second half of 2020. According to World Semiconductor Trade Statistics, 2H20 billings are projected at US$217.84b (+4.7% h-o-h; +0.9% y-o-y), with the increase coming from integrated circuits (except analog), memory and logic.
  • For 2021, the global semiconductor market is forecasted to grow 6.2% y-o-y, driven by double-digit growth in the memory segment.

Positioned as Key Industry Downstream Supplier

  • Management’s astute positioning for Micro Mechanics as a leading parts and consumables supplier in the broad spectrum of the semiconductor industry has proven effective, as reflected in its solid long-term revenue CAGR of 8.2% and net profit CAGR of 14.9% from FY02 to FY20. The extensive product range, production scale and geographical coverage have put Micro Mechanics in a superior position among downstream peers, providing customer stickiness.
  • Furthermore, the group’s stable gross profitability range between 46% and 63% since its listing (excluding 2009 GFC of 39%) is a strong testament to its competitive edge and management’s ability to retain pricing power in the cyclical sector.

Capacity Utilisation Continues to Remain Elevated

  • Going into the 1HFY21 peak season, factory utilisation rates are anticipated to stay elevated ( > 58%) due to the sustained recovery in the semiconductor industry, as well as inventory stockpiling of consumables by clients. Accordingly, we have tweaked our revenue forecasts slightly higher by 6.5% and 0.7% for FY21 and FY22 respectively, to reflect the current dynamics.

Cash Generation Ability Remains Strong

  • On the back of higher net profit and healthy cash generation, Micro Mechanics' net cash pile is estimated to grow 13.4% and 15.8% to S$23.6m and S$27.3m in FY21F and FY22F, respectively.
  • Consequently, our Micro Mechanics' FY21 earnings estimate has been revised upwards by 19.7% to S$16.4m, while our FY22 forecast has been raised by 4.4% to S$19m. This implies net profit growth of 11.9% and 16% over the next two years, backed by higher revenue and improved gross profitability from better capacity utilisation and a healthy pricing environment.

Maintain HOLD on Micro Mechanics

  • Maintain HOLD on Micro Mechanics with a higher target price of S$2.01 (from S$1.82). Our valuation is pegged to 9.1x EV/EBITDA, a 20% discount to global peers’ average due to its low liquidity. This implies a forward PE of 17.1x, just above +1SD of its historical average at 16.4x.
  • Currently, Micro Mechanics Share Price trades at a valuation of 10x FY21F EV/EBITDA and 18.7x PE, and offers an indicative dividend yield of 5.5%.
  • Entry price is S$1.70.
  • Micro Mechanics' share price catalyst:
    • Higher-than-expected factory utilisation rates in FY21.
    • Better-than-expected cost management.
    • Earnings accretive M&A opportunities.

Source: UOB Kay Hian Research - 18 Sep 2020

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Sembcorp Industries - Charting Its Own Path

Author: simonsg   |  Publish date: Fri, 18 Sep 2020, 4:29 PM

  • Since the demerger of Sembcorp Marine (SGX:S51) from Sembcorp Industries (SGX:U96) on 9 Sep 20, Sembcorp Industries' share price has significantly outperformed, rising by 36% from its theoretical demerged price of S$0.96/share.
  • We nevertheless continue to see upside over the next 6-12 months given that the company trades at a discount to its regional utilities peers both on a P/B and PE basis.
  • Maintain BUY on Sembcorp Industries with an updated target price of S$1.66 as we have extracted the book value of Sembcorp Marine from our valuation.

Outperformance of Sembcorp Industries Share Price

  • Since the demerger with Sembcorp Marine, Sembcorp Industries' share price has risen by 36% over the 9 Sep to 17 Sep period while the STI has seen a 0.2% decline over the same time frame. We attribute this to the fact that the removal of Sembcorp Marine as its subsidiary has given the market greater confidence in Sembcorp Industries’ future business outlook as it will not have the millstone of having to provide financial support for Sembcorp Marine going forward.

Expanding Its Renewable-energy Presence in China

  • On 11 Sep 20, Sembcorp Industries announced that it had signed an MOU with NASDAQ-listed GDS Holdings (GDS) to develop and provide renewable energy solutions for GDS’s data centres in China, as well as looking for opportunities to realise operational synergies between GDS’s data centres and Sembcorp’s renewable-power generation and water management systems.
  • Sembcorp Industries has stated that it will be GDS’s strategic partner in the development of integrated green solutions to support GDS’s environmental sustainability goals.

New China Growth Angle

  • While Sembcorp Industries did not provide any potential financial impact from this tie-up with GDS, we note that the latter’s 2Q20 results were extremely strong with revenue growing 36% y-o-y to US$189m while its EBITDA rose 48% y-o-y to US$90m.
  • Importantly, its EBITDA margin expanded nearly 4ppt to 47.2%. Operationally it saw a 51% y-o-y increase in its total committed and pre-committed area to 333,000m³ while its area-in-service increased by 48% y-o-y to over 266,000m³. GDS’s clients include Alibaba, Amazon Web Services, Huawei, JD.com and Bytedance.

Sembcorp Industries - Valuation & Recommendation

  • Reiterate BUY on Sembcorp Industries with an updated P/B-based target price of S$1.66, pegged at 0.8x P/B (previously 0.6x) to its end-1H20 book value of S$2.08/share.
  • Our new target P/B multiple is a discount of 8% to its 5-year P/B average of 0.86x, which we view as reasonable, given that the market will have a much better look through to Sembcorp Industries’ earnings without the ‘fog’ of Sembcorp Marine’s losses (see net profit chart on RHS). However, we are reluctant to ascribe a higher P/B multiple to Sembcorp Industries at this stage given that:
    1. the company has businesses that are still struggling as they lack regulated earnings, notably UK Power Reserve, and
    2. the uncertain nature and trajectory of the regional and global economic recovery post-COVID-19 affects energy demand.

Regional utilities peers trade at higher P/B multiples

  • We highlight that gas & thermal utilities peers in the region trade at a P/B of 1.0-2.3x, renewables peers trade at 1.3-4.7x P/B while water & waste treatment peers trade at 1.8-2.4x P/B. Unfortunately, Sembcorp Industries does not disclose the book value of its various business segments in this manner and thus we are not able to undertake a comparable-company valuation.
  • Nevertheless, with Sembcorp Industries trading at 2021 P/B of 0.5x, we are confident that the valuation gap to its peers will close in the next 6- 12 months.

Meaningful upside in the medium to long term, based on earnings multiples.

  • Looking at Sembcorp Industries’ utilities comparables in the region, there appears to be meaningful valuation upside in excess of S$3.70 (excluding a holding company discount) if we were to use comparable PE multiples for its three business segments.

No longer bound by Sembcorp Marine’s fortunes

  • Sembcorp Industries' share price has shown a very high correlation of 94% vs Sembcorp Marine's share price over the past 10 years from 2010-2019. In our view, this was due to higher-frequency newsflow from the oil & gas industry as well as the offshore marine industry that moved Sembcorp Marine's share price, and thus also had an outsized effect on Sembcorp Industries' share price.
  • With the demerger, we believe that Sembcorp Industries' share price will be less volatile, and its valuation should reflect regional utilities valuations instead.

Sembcorp Industries' share price catalyst:

  • Sustained economic recovery post COVID-19 outbreak, thus leading to increased energy ilities demand.
  • Given the rally in Sembcorp Industries' share price in the past week, the threat of being excluded from the Straits Times Index has dissipated in our view.

Source: UOB Kay Hian Research - 18 Sep 2020

Labels: Sembcorp Ind
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Singapore Land Transport - Extension of Special Relief Fund

Author: simonsg   |  Publish date: Wed, 16 Sep 2020, 10:26 PM

  • Special Relief Fund extension for P2P industry; S$10/day rent waiver for taxis/private hire cars.
  • ComfortDelGro (SGX:C52) to extend 25% rental waiver for its taxi hirers, stepped down from 30% earlier.
  • New Private Hire Drivers need to be Singapore citizens above 30 years of age, with one year minimum driving experience.
  • At 1.2x P/BV which is -2SD of its historical average, we maintain BUY for ComfortDelGro.

Extension of Special Relief Fund Amounting to S$112m for P2P Industry

  • The Land Transport Authority (LTA) has announced an additional S$112m to support the Point-to- Point (P2P) industry. It has indicated that with the resumption of some activities in Phase 2, demand for taxi and Private Hire Cars (PHC) has increased but ridership is still around 70% of pre-COVID levels.

Payouts of S$300 per vehicle per month.

  • Of the total SRF amounting to S$112m, the bulk (S$106m) will go towards providing rental reliefs for active taxi and PHC drivers. This amounts to rental relief of about S$10/day per vehicle, as per the original relief announced earlier in February 2020. With that, LTA indicated that taxi operators have also pledged to continue providing matching rental rebates worth a total of S$29m to hirers.

Unhired taxi relief of S$2,200 and Licence Fee waiver for taxi operators.

  • The government will also be extending reliefs for operators, which include
    1. Special Relief for unhired taxis, amounting to S$2,200 per unhired taxi over a 6- month period till March 2021 (estimated cost of S$4.6m);
    2. Licence fee waiver extension for a further three months (previously-announced 9-month period waiver) at a cost of 1.2m.

ComfortDelgro extending 25% rental waiver till 31 Oct.

  • Separately, ComfortDelGro has also announced a 25% rental waiver for its hirer from 16 Sep to 31 Oct. We estimate that on average, the waiver could amount to about S$30/day, of which S$10 is from the government’s SRF (as per above).
  • This is a progressive step down from the 30%/40%/50% rental waiver extended in the past few months post the Circuit Breaker period. ComfortDelGro has also indicated that it would continue to at least match the S$10/day SRF that the Government will extend till March 2021.

Minimum age for PDVL drivers raised to 30 years and Singapore citizens for new applicants.

  • The eligibility criteria for Private Hire Car Driver Vocational Licence (PDVL) is changed with effect from 15 Sep 2020 (5.30pm). All new applications for PDVL must be Singapore citizens and are at least 30 years old, with a minimum of one year’s driving experience. This aligns the PDVL with the Taxi Drivers Vocational Licence (TDVL).

Our Views

Ridership improving, albeit gradually – a step in right direction.

  • The extension of rental waiver from ComfortDelGro is not totally surprising, given the gradual recovery in ridership. The government’s extension of SRF, in our view, is a welcome relief to support the industry and ease the burden on operators, in our view. In fact, the gradual stepdown in rental waiver by ComfortDelGro shows ridership improvement and is in accordance to our thesis and observation.

Alignment of PDVL and TDVL a long time coming.

  • The alignment of the eligibility criteria was a long time coming, in our view. In fact, we were expecting development on this during the P2P Transport Bill 2019. In our view, this will help limit potential new drivers causing further demand-supply distortion, especially in the current period of lower demand.

Consolidation of P2P industry could be in the works.

  • We continue to hold the view that the occurrence of COVID and its impact will catalyse the consolidation of the P2P industry. With private rental car fleet in Singapore ballooning to over 70,000 vehicles (of which over 50,000 are chauffeur-driven), along with current fleet of 16,000 taxis, this would cause the weaker players to exit the industry.

Maintain BUY for ComfortDelGro

  • We maintain our thesis on ComfortDelGro with target price as per our report ComfortDelGro - DBS Research 2020-09-03: Has Market Priced In Phase 3? We Think Not.
  • We believe valuations are attractive at 1.2x P/BV (-2SD of historical mean) and that the market has not priced in Phase 3 recovery. We also see higher odds of ComfortDelGro share price appreciation over the next 6-12 months vis-à-vis downside.

Source: DBS Research - 16 Sep 2020

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Wilmar International - be Patient; Re-iterate BUY

Author: simonsg   |  Publish date: Tue, 15 Sep 2020, 10:27 PM

  • Re-iterate BUY on Wilmar International (SGX:F34) despite the recent setback from the unexpected placement by Archer Daniels Midland (ADM) and the final approval for Yihai Kerry Arawana (YKA) listing taking longer than expected. Investors should focus on the potential value creation from YKA listing as well as a potential special dividend.
  • Beyond YKA’s listing, the strong 1H20 earnings have led to a 10% consensus earnings upgrade, and Wilmar could potentially outperform consensus again on better-than-expected margins.
  • Maintain BUY on Wilmar with a higher target price of S$5.35.

Recent Wilmar Share Price Weakness Not Justified

  • Since the placement by Archer Daniels Midland (ADM), Wilmar's share price has weakened by 15% which we believe is due to:
    1. concern over share overhang from the placement of 170.5m shares at S$4.40 by ADM and issuance of convertible bonds into Wilmar shares at S$5.60 (US$4.11); and
    2. final regulatory approval for Yihai Kerry Arawana’s (YKA) listing taking a longer time than expected, which has raised concerns of further delays or even being rejected.

Potential Strong Debut From YKA Listing and Good Earnings Could Overcome the Overhang Concern

  • The share placement by ADM may lead to short-term overhang on Wilmar’s shares, but we remain positive on Wilmar and foresee strong catalysts for Wilmar's share price from the planned listing of YKA and expected strong 2H20 earnings performance.
  • The first batch of 18 companies under the ChiNext registration system was listed on 24 Aug 20, with an average issuing PE of 39.3x. On the first day of listing, share prices of these companies surged 43-1,061% from their issue prices.
  • In addition, Wilmar's 1H20 core net profit was better than consensus and led to a 10% consensus earnings upgrade. Our revised earnings estimate is about 9% above consensus, and we foresee more earnings upgrade once Wilmar announces its 3Q20 financial metrics in early-Nov 20.

Listing of YKA Is on Track Despite Final Approval Taking a Longer-than-expected Time

  • Despite the listing process of YKA taking a longer-than-expected time, the listing date is drawing close, and the final approval from China Securities Regulatory Commission (CSRC) could come anytime soon. In addition, we do not foresee any risk of the listing being rejected or aborted.
  • The YKA listing is a value unlocking exercise for Wilmar and could reward shareholders with better dividend payouts in the future as YKA will no longer need to draw on Wilmar’s balance sheet to fund its aggressive expansion.
  • During the recent briefing, management mentioned that investment in China over the next 3- 5 years would be larger than the investment in China over the last 30 years.

Wilmar's 2H20 Performance

  • Wilmar’s 1H20 core net profit of US$635.9m accounted for about 47% of our full-year core net profit estimates of US$1.35b, which implies that 2H20 core net profit is expected to come in at US$715m-720m vs 2H19’s US$829.3m. Despite our recent earnings upwards revision, 2H20 earnings could come in better again given the recent spike in oilseeds and vegoil prices.
  • Prices of soybean, soymeal and soyoil have strengthened recently as the dry weather in the US and South America is likely to reduce the upcoming soybean supply. Based on our channel check, Wilmar would have secured the required feedstocks for its midstream processing and downstream requirements earlier before this spike. Thus, we could potentially see much better processing margins in 4Q20 and this could continue into 1Q21.

YKA’s Strong Market Presence in China Consumer Staple Is Undisputable

  • Wilmar through YKA has continued its aggressive expansion plan by increasing more production capacities, exploring new locations, expanding marketing & distribution network and horizontal products expansion to supply more raw materials to its existing clientele in China.
  • As at end-19, YKA had production facilities in 65 locations in China and a total of 4,406 distribution centres/channels. The good distribution network benefitted the company immensely during the COVID-19 lockdown in China when inter-city movement was restricted.
  • In 1H20, sales of consumer packs in China reported a growth of 28.7% y-o-y growth, while its food products division reported a 21% y-o-y growth in PBT. Wilmar was able to achieve this due to minimal distribution disruption. In addition, it also gained more market share as competing products were not replenished on time due to the lockdown. As at end-19, YKA had production facilities in 65 locations and 4,406 distribution agents and channels.

Upward Adjustments of Earning Forecast

  • We have adjusted our 2020F/21F/22F earnings forecasts up by 19.5%, 6.8% and 4.1 respectively. The adjustments are mainly to reflect higher sales volume and better margin for oilseeds & grain (better demand for soymeal as the swine industry is stabilising and starting to see marginal growth), consumer packs (gained market share during the lockdown period as competing products were not widely available) and sugar merchandising & processing (wider price spread between raw sugar and white sugar positive to sugar refiners).
  • We are now expecting 2020F/21F/22F EPS of 21.1 US cents, 21.5 US cents and 22.4 US cents.

Wilmar - Valuation & Recommendation

  • Re-iterate BUY with higher target price of S$5.35 (previous Target Price: S$4.80). The higher target price is to reflect higher 2021 earnings forecast and also factors in a higher PE for YKA’s food products (to 30x PE from 26x PE previously) in our SOTP valuation. This implied a blended 2021F PE of 24x for YKA.
  • The higher PE valuation given to YKA’s food products is mainly to reflect improving margins due to higher consumer pack sales and higher trading multiple for CSI Consumer Staple Index (from 24x PE to 28x PE).

Wilmar's Share Price Catalyst

Stronger earnings.

  • A stronger recovery in 2H20 earnings could happen with potential upside coming from the sudden surge in sales volumes as China relaxes its movement restrictions. Recent newsflow from China revealed that sales of cooking oil, rice and flour is strong, and this could translate into better-than-expected sales volumes.

Potential special dividend.

  • Post listing of YKA, we expect Wilmar to declare a special dividend, which could lift dividend yield by 2-2.5ppt (assuming 25-30% payout from the IPO proceed) on top of the expected 3.0% yield from the annual dividend.

Source: UOB Kay Hian Research - 15 Sep 2020

Labels: Wilmar Intl
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