SINGAPORE: WILMAR INTERNATIONAL BUY
Price/Tgt: S$2.62/3.60 Mkt Cap: US$11.8b Avg Daily Val: US$15.4m 1-Yr Hi/Lo: S$3.42/2.57
Focusing On Core Businesses
Wilmar's share price has weakened over the last three weeks by 12% on the concern of lower interest income due to interest cost normalisation. For the last three years, total interest income was 26%, 29% and 39% of 2012/13/14 PBT respectively and positive net interest income for 2014 was US$77.4m (5% PBT) and US$17.9m for 1H15 (4% PBT).
Selldown largely done by short sellers, which hit as high as 50% of total volume. This situation will reverse as we are expecting good 2H15 results.
The aggressive share buyback (58.76m shares or 0.919% of issued shares) shows that Wilmar is undervalued at only 0.8x 2014 BV, which is supported by its good plantation assets (238,600 ha in planted areas with a conservative estimation value of about 20% of market cap) and prime landbanks located mainly at the major ports of each of the countries it operates in for its downstream operations.
Focusing on core business which is doing well. Wilmar's mid- and downstream operations, which are far larger than its upstream operations, are benefitting from the lower feedstock prices. Palm refining margins will be better in 3Q15 (post implementation of Indonesia exports levy) and soybean crushing margin is improving (better soybean meal price vs declining soybean prices), while expansion into more consumer products will bring down the average operating cost. Sugar should deliver positive earnings this year as sales for its milling volume had been largely locked in earlier at prices higher than current market prices.
The new growth: Africa, sugar and consumer pack businesses are three key areas to watch for growth.
HEAVY SHORT SELLING
Source: Bloomberg
SOYBEAN CRUSH AND PALM REFINING MARGINS IMPROVED SINCE JUN/JUL
Source: Bloomberg, Shanghai JC Intelligence, UOB Kay Hian
https://research.uobkayhian.com/content_download.jsp?id=30287&h=1d749bd803935f7edf4b14ce1176d78
Regards,
Singapore Research Team
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This transmission has been issued by a member of the UOB Kay Hian Group for the information of the addressee only and should not be reproduced and/or distributed to any other person. Each page attached hereto must be read in conjunction with any disclaimer which forms part of it. Unless otherwise stated, this transmission is neither an offer nor the solicitation of an offer to sell or purchase any investment. Its comments are based on information obtained from sources believed to be reliable but UOB Kay Hian Group makes no representations and accepts no responsibility or liability as to its completeness or accuracy.
