• Reiterate BUY and SGD4.75 Target Price, 20% upside and 3% dividend yield.
• Post-analyst briefing, we remain upbeat on Wilmar's share price performance as the China IPO draws near. Management guided that the listing will happen by end-1Q20 at the latest. It is also confident of the group’s 4Q19 performance, underpinned by stronger CPO prices for the plantation unit and improvement in the oilseeds and grains segment.
• Wilmar International (SGX:F34) is one of our country Top Picks.

China IPO Progress Update

• According to management, the group has responded to the China Securities Regulatory Commission’s (CSRC) queries pertaining to the prospectus submitted in July, After CSRC has vetted and accepted Wilmar International’s response, a written approval should be issued in approximately two months’ time – following which, the actual listing could then take place within weeks. Management is targeting for the listing to happen in 3-4 months’ time, at the latest.
• During the briefing, CEO Kuok Khoon Hong said that Wilmar International will pay a “good special dividend” post listing.
• Special dividends aside, we believe investors should also reap strong returns from a further rerating of the stock – once the China IPO is completed.

Upstream Plantation Segment to Benefit From the Rise in CPO Prices

• We expect to see a continued strong performance in the tropical oils segment in 4Q19, as its plantation unit will gain from the hike in the price of CPO.
• Wilmar International is also likely to maintain a decent processing margin for the mid-and downstream businesses, from lower-cost inventories and/or the timely purchase of raw materials. We note that Wilmar International’s oleochemical facility in China has also ramped up capacity and turned profitable, thus further enhancing margins in the tropical oils business.

FFB Production to Decline by 2-3% for FY19

• FFB production to decline by 2-3% for FY19 due to weather conditions. However, with replanting and fertiliser application, the group expects FFB production growth to be flat-to-slightly positive next year.

Oilseeds and Grains Unit to be Buoyed

• Oilseeds and grains unit to be buoyed by higher demand for consumer products, as well as rice and flour products in 4Q19. The Lunar New Year in 2020 will come early, on 25 Jan.
• We expect volumes to begin picking up in 4Q19 as food and beverage manufacturers, retailers and caterers stock up for the festive season. In addition, management said that smaller soybean crushers have exited the business, due to the challenging operating environment brought on by the African swine fever epidemic. This, coupled with the recent recovery in pork prices in China, could help to boost soybean meal demand for the group.

Source: RHB Invest Research - 14 Nov 2019