• Wilmar International earned its accolades in 2021 and is still working towards its targets of 100% traceability to the mills by 2023 and 100% Sustainable Palm Oil (RSPO) certification by 2025 for all their palm oil management units.
• Wilmar International is also committed to net-zero emissions by 2050. They also recently announced their NDPE (No Deforestation, No People Exploitation) Sugar policy to ensure sustainability for the sugar sector.
• Maintain BUY.

Best in Sustainable Practices

• Wilmar International (SGX:F34) is one of the best in sustainable practices in the palm industry. They are ranked first in the SPOTT scoring by Zoologist Society of London, listed in the World Dow Jones Sustainability Index and have many other awards for their sustainability efforts.
• Wilmar International remains committed to their sustainability journey. Below are some of the sustainability initiatives Wilmar International made and their upcoming targets moving forward:
  1. NDPE commitments for palm. As of Dec 21, 98.2% (23.6m tonnes) of Wilmar International’s palm oil is traceable to the mills and 83.5% of volume across Wilmar International’s global supply chains is from suppliers that have at least company group-level commitment/action plans to address NDPE requirements, whereas 68% of its global supply chain is traceable to the estates. Wilmar International targets to hit 100% traceability to the mills by 2023.
  2. No exploitation; support for smallholders. Wilmar International had also emphasised on human rights such as child protection, the women’s charter and more. They also published a human rights framework in Dec 21, a first in the palm sector. Smallholders account for 7.1% of Wilmar International’s FFB supply base and are given high-yield seedlings, high quality fertilisers and training on sustainable agronomic practices. With these, the yield from the smallholders has also improved significantly.
  3. Roundtable on RSPO certification. Wilmar International targets to achieve Sustainable Palm Oil (RSPO) certification for all their palm oil management units (mills and supplying plantations) by 2025. Wilmar International used about 13% of total RSPO production. While Wilmar International is trying to increase the usage of RSPO, Wilmar International’s refinery capacity is at 23.6m tonnes but there is only 14m tonnes of RSPO-certified production and hence there is not enough RSPO production capacity for Wilmar International’s refineries.
  4. Climate changes. About 57% of the energy used by Wilmar International was derived from renewable energy in 2021. Wilmar International’s GHG (greenhouse gas) emission also dropped by 3% y-o-y in 2021. The group had also recently committed to net-zero emissions by 2050. To achieve this, Wilmar International is working with climate consultants to map out Wilmar International’s Scope 3 emissions, verifying Scope 1& 2 GHG emissions with third-party auditors and developing the roadmap to 2050.
  5. NDPE Sugar policy. Wilmar International introduced the No Deforestation, No People Exploitation Sugar (NDPE Sugar) policy in Sep 21. The objective is to work with their suppliers, and to improve their sustainability for long term benefit. There is no time bound plan yet. Having said that, 80% of their sugar refineries are covered for traceability to the mills currently.

Plasma Smallholders in Indonesia

• Out the total hectares owned by scheme smallholders, 11.7% in Indonesia and Ghana are RSPO-certified. On top of that, Wilmar International had fulfilled the Indonesian government’s requirement of provide community plantations (plasma) up to an area of at least 20% of the total concession area of the company.
• Currently, Wilmar International has a total planted area of over 34,032ha under government-originated plasma schemes and currently has fully met the regulation requirements.

Increasing Demand for Sustainability Certified Palm Products

• 91% of the RSPO production is sold as RSPO and other schemes such International Sustainability & Carbon Certification (ISCC). The management had also shared with us that the other sustainability certification for palm such as Malaysia Sustainable Palm Oil (MSPO) and Indonesia Sustainable Palm Oil (ISPO) as the production for RSPO-certified palm oil supply is lower than the demand and buyers turned to other sustainable certifications.

Maintain Earnings Forecasts

• Our current net profit forecasts for Wilmar International are US$1.78b, US$1.82b and US$2.0b for 2022, 2023 and 2024 respectively.

• Maintain BUY call on Wilmar International with target price of S$5.50. Our target price is derived using the SOTP-based valuation by pegging a 2022F P/E of 17x for the China operations and a blended 11x P/E for the non-China operations.

• Share price catalysts:

  • Stronger recovery in China operations.
  • Surprise margin upside from the good timing in sourcing of raw materials.

Source: UOB Kay Hian Research - 6 Jul 2022