• Asia’s growth to remain robust
• Rising consumerism in Asia
• Prefers long-term strategy for growth

Wilmar in Asia

Wilmar International Limited (WIL) has just published its annual report and this time, its central theme is “Wilmar in Asia”, highlighting its deep roots in Asia, and how WIL’s growth has almost been “synonymous” with the rise of Asia. Recall that its previous year’s annual report’s focus was on Africa. (Refer to Exhibit 1 for the footprint of WIL’s operations in Asia)

Rise of the Asian Consumer

Despite moderated growth and some downside risks, WIL expects the region’s outlook to remain robust and to also outperform the rest of the global economy; this driven by what it calls the “Rise of the Asian Consumer”.

Besides population growth in the region, WIL believes that rising affluence and accelerating urbanization, and consumers’ consumption preferences for better quality and safe food products will present growth opportunities of which WIL is well positioned to capture, given its considerable footprint in China (1.36b population), India (1.26b) and Indonesia (248.4m).

For example in China, WIL is the top oilseed crusher, edible oils refiner, manufacturer of consumer packs, and leading rice and flour miller among others.

Building for longer term growth

Although WIL anticipates the challenging macro factors to persist in the near term, it should still continue to do “reasonably well” this year, citing its resilient business model and vertical integration during its 4Q15 results briefing in late Feb.

And as before, management will continue to set its sights on the long term, as it believes that adopting a long-term strategy is key “to paving a sustainable growth path”. Note that this still includes Africa, which has a long gestation period of 10-15 years.

Maintain HOLD

Although we share management’s optimism about the group’s long-term prospects, we note that the near-term valuations are not as attractive; this as the stock price is already trading very close to our S$3.34 fair value. And with the recent pullback in sugar prices, there could still be some near-term earnings volatility. Hence, we opt to maintain our HOLD call for now; would be buyers closer to S$3.20.

Source: OCBC Research - 12 Apr 2016