What is the news?

Wilmar has announced yesterday that it has purchased from Societe Nationale d’Investissement (SNI) a 27.5% stake in Cosumar S.A., a listed company on the Casablanca Stock Exchange, for an aggregate cash consideration of MA$2.3bn (US$263mn). Subsequently, SNI will sell up to 26.5% in Cosumar to a consortium of Moroccan institutional investors, who together with Wilmar will own a controlling 54% stake in the sugar producer. Cosumar is the sole operator in the Moroccan sugar industry through its two businesses: sugar beet & cane milling, and raw sugar refining. With an installed production capacity of 1.6mn MT per year, Cosumar is the 3rd largest sugar producer on the African continent.

How do we view this?

According to Bloomberg, Cosumar’s PBT was MA$729.8mn (US$84.53mn) in FY12, and based on Wilmar’s acquisition price for 27.5% of Cosumar’s stake, the deal is valued at 11x P/E. We estimated Wilmar’s cost price for Cosumar to be MA$2,000 per share, at a 29% premium to Cosumar’s last traded price of MA$1,545. This is still lower than the 57% premium which Louis Dreyfus paid to acquire lossmaking Imperial Sugar for US$78mn in June 2012. We note that there appears to be a trend of acquiring sugar companies like the recent Savannah Sugar acquisition by Dangote. In fact, China’s Bright Food is also looking to acquire overseas sugar firm. This Cosumar acquisition may be indicative that Wilmar wants to join the new ‘sugar’ wave.

Investment Actions?

We view this acquisition as a small positive, which would give the company’s sugar division access to new regions like Morocco, Southern Europe, Northern and Western Africa. This, in turn, will enable Wilmar to expand its sugar operations in Africa. Nonetheless, do note that Wilmar’s PBT is US$1,167mn/US$1,378mn in FY12/13E, and we believe any potential impact to Wilmar should remain insignificant in the near term. As such, we are not making adjustments to our earnings forecasts. Maintain Neutral with target price of S$3.79.

Source: PhillipCapital Research - 17 Apr 2013