Lifting China Lockdowns and 2H20 IPO Catalysts

• Wilmar International (SGX:F34)’s 1Q20 NPAT disappointed MKE/Street expectations from mark-to-market losses on their investment portfolio. Excluding this, PAT increased 23% y-o-y from a strong performance in its underlying businesses – particularly consumer products and oilseeds & grains.
• As China (where Wilmar derives nearly 60% revenue) opens up from Covid-19 lockdowns, volume momentum should pick up in our view. Wilmar’s food staples portfolio, wide nationwide distribution and competitive pricing for input commodities should drive advantages in margins and market share.
• The potential listing of its China business in Shenzhen in 2H20, may further be an upside catalyst.
• We lower our Target Price to SGD4.12 to largely reflect uncertainty in palm oil & further investment volatility. With 16% upside, upgrade Wilmar to BUY.

Improving Conditions in China

• Management claims that their China-wide production and distribution capabilities has enabled them to manage their supply chains without disruption during lockdowns & also helped to gain market share from suppliers without such networks. African Swine Flu conditions are retreating, partially supported by the lockdowns, and demand for feed is rising with crushing utilization levels now at 80-90%.
• 2Q20 consumption momentum across product categories are significantly better q-o-q and overall margins should improve given falls in commodity prices YTD, according to management.
• Palm oil may see some pressure given weaker bio-diesel demand from low crude oil prices and import restrictions in some countries. We have lowered segment 2020-21E PBT by 9-20%.

IPO Back on the Table, But Some Overhangs Remain

• Wilmar investment portfolio comprising high yield equities in China, HK, SG will remain a major overhang in volatile markets, we believe. Management claims these are long term holdings and high quality names.
• Separately, Wilmar expects their China business carve out to be listed in 2H20. Wilmar’s China listed peers trade at a 75% PE premium even in current market conditions, so a successful listing may be an upside catalyst going forward.

Upgrade to BUY With New Target Price: SGD4.12

• We are forecasting losses in Wilmar’s investment portfolio in 2020E. Together with other post 1Q20 changes, we have lowered 2020-21E NPAT by 2-12%. We lower our blended DCF (WACC 5.3%, 1% terminal growth) and global peer PE (target PE of 15.7x at latest prices) target price to SGD4.12 (from SGD4.37).
• With 16% upside, upgrade Wilmar to BUY.

Source: Maybank Kim Eng Research - 12 May 2020