A China Listing Should Uplift Valuations

• We estimate a Chinese listing can potentially unlock as much as a 23% higher valuation for Wilmar International (SGX:F34) - consumer staple peers in China trade at an 80% PE premium. The group is likely to raise at least USD2.1bn to support new capacity in oilseeds and grains processing, according to its prospectus lodged with China’s securities regulator – CSRC.
• If the Singapore ParentCo pays out an equivalent of half the raised amount as capex savings, the 2020E potential dividend yield could rise to 9% (vs. 2.7% now).
• Rising hog production in China should improve earnings visibility, while Wilmar International’s gearing towards emerging market, staples consumption should provide a counter-cyclical buffer from current trade-war related volatility.
• BUY.

A Step Closer

• The CSRC has accepted the listing application from Yihai Kerry Arawana Holding Co’s (YKA) – the holding company for Wilmar International’s Chinese assets –to list in the Shenzhen Stock Exchange. The listing process will take another 3- 12 months depending on the IPO backlog and market conditions, according to Management.
• Nevertheless, according to their prospectus, ~60% of Wilmar International’s earnings are from China. This should trade at a higher valuation, in our view. The consumer staples sub-index of the CSI300 trade at 24.2x forward PE compared to Wilmar International’s 13.5x.
• New funding should ease Wilmar International’s capex in China. A 70% saving in 2020E capex by the ParentCo, can potentially result in a SGD0.22 special DPS, we estimate.

Better Outlook for Operational Headwinds

• In a Reuters report, China African Swine Flu (ASF) recovering. Together with a farming, this bodes well for Wilmar International’s Chinese soybean crushing volumes and margins, raising upside risks to earnings.

Maintain BUY

• With 90% of scarce production, processing and these markets, Wilmar International’s staples consumption product mix should provide a counter-cyclical buffer to slower growth from the ongoing US-China trade & tech war.
• Trading at 1x PB, maintain BUY.
• Our Target Price of SGD4.21 is based on blended multi-stage DCF (WACC 5.3%, 1% terminal) and global peer basket (17.5x 2020 target PE).

Source: Maybank Kim Eng Research - 17 Jul 2019