Operating Conditions Improving; IPO Upside

• Wilmar International (SGX:F34)’s 1H20 PAT was in-line with Street/MKE expectations.
• Margins and volumes rose from recovering demand in China supported by the dual improvements from COVID-19 and ASF in the Mainland. The Group is also in the final stages of listing its China businesses (~60% of revenue) in SZSE by 2H20 where PE multiples are > 2x higher than now. This also opens up the potential for a special dividend to existing shareholders.
• We have raised Wilmar International's 2020-2022E EPS and updated our peer basket valuations. Following roll forward of our DCF and peer-PE methodology to 2021E, we have raised our Target Price to SGD5.24. With 12% upside, maintain BUY.

Delivering From China Recovery

• Wilmar International’s Food Product segment PBT/t increased 17% y-o-y largely driven by a shifting mix towards higher end branded flour, rice, cooking oil. 2Q volumes increased 20% y-o-y and management expects this momentum to continue in to 2H. 2Q wholesale volumes also saw a 5.4% y-o-y improvement as hotels, restaurants re-open following lockdowns, and we believe this should accelerate as restrictions are further relaxed.
• Crushing margins in the Feed & Industrial Products saw strong recovery, with segment 1H20 PBT/t increasing 88% y-o-y. Management claims this is driven by structural improvements from hog stock rebuilding following African Swine Flu (ASF) together with low input costs. We believe this recovery will further strengthen going in to 2021E. This may be potentially boosted by Indonesia, India demand as these markets gradually emerge from COVID.

Potential IPO and Special Dividend Upside

• Wilmar International is on track to list their China business by September, according to Management. The Group claims its peer group trades > 30x PE here and would be looking for similar valuation for listing.
• Part of the funds raised will be released as special dividends (proportion not disclosed) and the rest will be used for expansion – especially to add more capacity in flour, rice and higher margin products.
• Wilmar International will be simultaneously pursuing growth in other key markets including India, Indonesia and SE Asia.

Raise Target Price to SGD5.24. Maintain BUY

• We have raised 2020-2021E PAT by 1-14% due to improving operating conditions in China and key markets. We have also rolled forward valuations to 2021E. We raise our blended DCF (WACC 5.3%, 1% terminal growth) and global peer PE (target PE of 20.1x at latest prices) target price to SGD5.24 (from SGD4.12).
• With 12% upside, maintain BUY.

Source: Maybank Kim Eng Research - 12 Aug 2020