• Wilmar International is one step closer to its China listing. Its subsidiary, Yihai Kerry, was amongst the first batch of 32 companies selected for Shenzhen Stock Exchange’s (SZSE) growth enterprise market (GEM) board pilot registration system for listing. As previously guided by management, the IPO process would likely be hastened under this programme.
• The removal of the IPO valuation cap under the new rule also creates potential upside for its value.
• Maintain BUY on Wilmar International with new Target Price SGD4.87 from SGD4.83, 17% upside and 3% yield.

Update on China IPO Status

• Wilmar International (SGX:F34) has submitted an updated prospectus to the SZSE for its review and approval on 22 Jun. According to the new GEM stock issuance and listing review rules, the total time SZSE takes to review new listing and register with the China Securities Regulatory Commission (CSRC) should not exceed three months from the date it accepts the application documents. Issuers and sponsors are also required to response to SZSE inquiries within three months.
• Given that Yihai Kerry has previously undergone one round of review by CSRC, we believe the audit inquiry process with SZSE would be smoother this time and the approval could be hastened. Management maintains its timeline guidance on the IPO and hopes to receive the listing approval in 2H20.

Potential for Higher IPO Valuation

• The IPO price will be decided by the market, and not bound by any IPO valuation cap under the new rules. We note that Yihai Kerry has highlighted an indicative use of proceeds amounting to CNY13.87bn in its prospectus. Since Wilmar International plans to float 10% of Yihai Kerry, the indicative proceeds translate to a market capitalisation of CNY138.7bn and imply 25.6x FY19 P/E.
• The IPO price has not been set yet. Hence, there could be room for higher IPO valuation to be achieved, given that China consumer peers are trading at 34x FY20F P/E (FY19: 56.8x P/E).
• While management has repeatedly highlighted that it would leave some upside for IPO investors, the new rules allow stocks to trade with no up or down limit on the first five days of listing. Therefore, Yihai Kerry could quickly rerate to peer average even if the IPO valuation multiple was set conservatively.
• We believe the IPO would draw substantial interests due to its large capitalisation, aside from its strong household name in China’s consumer packed edible products.

Changes in Target Price

• We raise our SOP valuation for Wilmar International to SGD4.87 as we rollover our valuation to FY20F-21F which factors in some of the recovery in consumption volumes and commodities prices in 1H21F. Our earnings forecasts remain unchanged.
• We continue to peg the oilseeds & grains (the bulk of Wilmar International’s China business) conservatively at 23x P/E as we think this could be the floor valuation given that it was the valuation cap under the previous system. There is thus potential upside to our Target Price when Yihai Kerry becomes listed and its share price rerates.

Source: RHB Invest Research - 24 Jun 2020