• Listing is pending for CSRC’s approval
• Wilmar will retain majority control
• Expansion in China’s operations

YKA to be Listed on Shenzhen Stock Exchange

Wilmar announced that Yihai Kerry Arawana Holdings Co., Ltd (YKA), a 99.99% owned subsidiary, submitted its IPO application to the China Securities Regulatory Commission (CSRC) for its proposed listing on the Shenzhen Stock Exchange last Friday. YKA is one of the largest agribusiness and food processing companies in China, mainly engaged in the production, sales and R&D of kitchen food, feed ingredients and oleochemicals in China.

The listing, if approved by the CSRC, will see YKA issuing up to 54.2m shares, or about 10% of the total pro-forma share capital of YKA after the proposed IPO. There will not be any secondary offering.

Funding for Capital Expenditure

Wilmar will retain the majority control in YKA post listing and for the foreseeable future. Wilmar is anticipated to hold 89.99% of YKA via its wholly owned subsidiary, Bathos Company Limited, immediately post the proposed IPO. The estimated net IPO proceeds of CNY 13.9b is intended to fund YKA’s capital expenditure requirements, focusing on fixed assets investment projects in the kitchen food industry which is the also core business of YKA, representing ~60% of YKA’s revenue in FY18.

Fair Value Increased to S$4.26

According to the prospectus, YKA’s reported 4% YoY growth in net profit to CNY 5.5b (~US$0.8b) in FY18, contributing ~63% of Wilmar’s net profit of US$1.3b in FY18. The proposed IPO is aimed to expand and grow Wilmar’s operations in China by promoting the brand’s visibility and awareness among existing and potential customer and investors.

In view of YKA’s IPO, we attach a higher valuation to Wilmar’s oilseeds & grains segment (PER of 19X). Based on the SOTP valuation methodology, our fair value estimate consequently increases from S$3.66 to S$4.26. Upgrade from Hold to BUY.

Source: OCBC Research - 17 Jul 2019