• Wilmar International announced last evening that the Shenzhen Stock Exchange (SZSE) ChiNext Board Listing Committee has approved the proposed listing of its China subsidiary Yihai Kerry. The next hurdle is the final registration approval by the China Securities Regulatory Commission (CSRC).
• We are positively surprised by the expedited procedure and expect the listing to happen by year-end. With the IPO imminent, we raise our Target Price to reflect the potential valuation of Yihai Kerry.

Estimate on Yihai Kerry's IPO Timeline

• After the clearance from the SZSE ChiNext Board Listing Committee yesterday, the next hurdle is the CSRC’s decision to accept the registration application.
• We note that under the new ChiNext Growth Enterprise Market listing rules, the CSRC has 20 working days to decide after Yihai Kerry’s submission. This is in line with the group’s latest guidance that the approval would take a few more weeks. Following this, we believe the IPO could take place in as quickly as one month to leverage on the positive sentiment from the outstanding 1H20 results.
• We are confident that the listing would happen by the end of the year.

Upgrade of Yihai Kerry’s Valuation

• We estimate the IPO price to be set at 25-30x P/E as management has highlighted that it would leave some upside for IPO subscribers. Nonetheless, we believe the price could quickly rerate once the listing takes place.
• As such, we upgraded Wilmar’s oilseeds and grains business’ (predominantly China business) target valuation to 35x P/E, in line with peer average. This, together with the rolling forward to FY21F as the base year, raises our SOP-derived Target Price for Wilmar with a 10% conglomerate discount to SGD5.45.

Reiterate BUY on Wilmar International

• Although Wilmar's share price has moved up 16.3% YTD, we firmly believe that there is still more upside to come.
• In view of the COVID-19 pandemic, we note that other Chinese consumer staples names such as Foshan Haitian (75x), Mengniu (38x), Toly Bread (45x), and Yihai International (93x) are trading at very high forward P/E multiples during this period. We are thus confident that a 35x P/E is achievable for Yihai Kerry given its strong household consumer pack name (Arawana) in the China market and market leadership across the consumer pack oil, rice and flour staple segments.
• Maintain BUY, higher Target Price of SGD5.45 from SGD4.87, 14% upside and 3% yield.

Source: RHB Invest Research - 7 Aug 2020