• Reiterate BUY with revised Street-high SOP-based Target Price of SGD4.50 from SGD3.94, 20% upside plus 3% yield, as we now ascribe a higher valuation to its oilseeds & grains division, in view of its China listing.
• Last Friday, Wilmar International (SGX:F34) announced that it submitted the prospectus for the proposed listing of its China subsidiary, Yihai Kerry Arawana Holdings (YKA). The China Securities Regulatory Commission (CSRC) has accepted the application for the proposed listing on Shenzhen Stock Exchange.

China IPO Draws Near

• The listing is now pending approval by CSRC. During the last results briefing, management guided that the approval process could take 2-4 months. As such, we expect the IPO to be on track for completion by this year.

Expected Valuation

• According to the prospectus, CNY57% of Wilmar International’s 2018 earnings were derived from YKA. Wilmar International expects to list 10% of this China subsidiary and use the net has not officially indicated the possible valuation range, the preliminary prospectus states that the total amount of funds raised in this IPO is estimated to be no more than CNY13.87bn.
• Using CNY132018 PATMI, we estimate a valuation of 27x FY18 P/E for YKA. We note that this is above China’s IPO valuation cap of 23x, which could signal that Wilmar International is expecting.

Rerating of Share Price

• In view of the impending IPO, we now ascribe a higher P/E of 20x for the oilseeds & grains segment, which forms the bulk of YKA’s earnings. This has raised our SOP-derived Target Price to SGD4.50 from SGD3.94.
• We believe Wilmar's share price movement in 2H19 would be supported by news of the IPO rather than its results. Therefore, the pulling of its China IPO would be a key downside risk to the stock price, in our view.

Source: RHB Invest Research - 15 Jul 2019