Analysts are all positive on Wilmar International’s prospects after the group posted strong 2Q20 earnings of US$329 million ($451.7 million) on Aug 11.

See: Wilmar International 2Q20 earnings more than double y-o-y to US$386.6 mil

DBS Group Research analyst William Simadiputra, OCBC Investment Research’s Chu Peng, CGS-CIMB Research’s Ivy Ng, and RHB Research’s Juliana Cai have collectively maintained their “add” or “buy” calls on the counter.

DBS’s Simadiputra has given Wilmar a higher target price of $5.28 from $4.60 previously, after the group’s results surpassed the brokerage’s expectations. He has also raised his earnings estimates for FY20/21F by 12%/13% as he expects Wilmar to “excel” even during the pandemic.

“Earnings will be driven by consumer food products, followed by steady feed and industrial products segment. We believe our earnings forecast captures management’s view on 2H20 performance which is ‘cautiously optimistic’ after performing well in 1H20 amid COVID-19 pandemic in China and major countries outside China,” he says.

“There is no change to our FY20F PE multiple target for China operations/Yihai Kerry Arawana (YKA) of 22x (YKA accounts 60% of Wilmar’s FY20F earnings). The possibility for YKA to list above 23x will depend on the market sentiment toward the IPO, in our view. We note that the Shenzhen Stock Exchange ChiNext’s average PE multiple is above 50x,” Simadiputra adds.

OCBC Investment Research’s Chu has raised her fair value estimates to $5.40 from $4.54 previously. She has also attached a higher price-to-earnings ratio (P/E ratio) of 25x to the group’s oilseeds & grains segment, which make up the main business of YKA. Wilmar has guided that YKA’s IPO is expected to be approved in 3Q20 and listed in the second half of September in 2020.

“We continue to like Wilmar for the diversification of its products and strong penetration in China. While the strong growth in Consumer Products is likely to taper off in 2H after countries exit from lockdowns, the recovery in demand from HORECA, improved crush margins and CPO prices could provide some buffer,” Chu says.

“YKA IPO remains the key catalyst for Wilmar and we anticipate a special dividend post IPO,” she adds.

CGS-CIMB Research analyst Ng has maintained her target price of $5.53, as she continues to “like” Wilmar for its “favourable earnings prospects in 2020”.

On that, Ng has upped her earnings and earnings per share (EPS) estimates for FY20F by 15% and 14.7% respectively, to reflect higher crush margin for its oilseeds and grains division, she says.

On YKA’s imminent IPO, Ng feels YKA might be potentially worth more than Wilmar’s market cap should its IPO fetch a 38x P/E valuation, which would make YKA’s market cap at around US$24.4 billion.

“We estimate the implied P/E for YKA at current share price to be just 22x. We gather that c.3% of the new shares to be sold upon listing will be locked up for one year. As such, free float will be 7%,” she says.

“The market could also be undervaluing YKA’s potential value, which is set to be unlocked upon its ChiNext listing. These, coupled with a potential special dividend, are key catalysts for Wilmar,” Ng adds.

RHB Research’s Cai has also increased Wilmar’s target price to $5.45 from $4.87 previously, with a 12% increase in her FY20F earnings estimates.

On YKA’s IPO, Cai estimates the special dividend distributed to be at 10 cents per share.

“We expect Yihai Kerry to rerate to at least c.35x forward P/E post-IPO, in line with the peer average. Wilmar expects to raise around RMB13.8billion from the IPO, which will translate into around 45 Singapore cents/share. A portion of the proceeds would be distributed as special dividends,” she says.

“With the China IPO being imminent and Wilmar’s sound business outlook, we expect its share price to remain strong,” Cai adds.

Shares in Wilmar closed 8 cents higher, or 1.7% up, at $4.87.