Analysts from CGS-CIMB Research, OCBC Investment Research (OIR) and RHB Group Research have maintained their “add” or “buy” calls on Wilmar International after the agri-business group reported 18.6% higher FY2020 earnings of US$1.53 billion ($2.02 billion).

The group, which saw improved contributions across all segments, distributed total dividends of 19.5 cents per share for the period ended December, the highest declared since its listing.

See: Wilmar reports 4.3% higher 2H20 earnings of US$923.6 mil on improved contribution across all core segments


While CGS-CIMB has maintained its target price at $6.15, OCBC has upped its fair value estimate to $6.16 from $5.40. Similarly, RHB has increased its target price estimate to $6.30 from $6 previously.

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Going into FY2021, CGS-CIMB analyst Ivy Ng projects Wilmar to record 7% earnings growth during the period driven by better food products division performance, higher palm products’ processing margin and higher plantation and sugar milling earnings.

“We continue to rate Wilmar an ‘add’ as the stock is undervalued and offers a cheaper and more liquid entry into its 90%-owned Yihai Kerry Arawana (YKA),” she writes.

Since YKA’s IPO in October 2020, its share price has jumped multi-fold (or 2.87 times) to RMB99.48 ($20.73) from its listing at RMB25.7.

Today, Wilmar’s subsidiary is worth US$75.1 billion ($99.12 billion) based on the latest market cap or 2.9 times more than Wilmar’s market cap of US$25.9 billion.

The way Ng sees it, the higher valuation accorded to YKA could be due to the stronger liquidity in China a s well as better appreciation of the growth prospects of YKA by Chinese investors.

“Given the three-year moratorium, Wilmar will not be able to sell down its YKA holdings in the near term,” she says.

“However, the group could fund potential mergers and acquisitions (M&As) within and outside China, complementary to its existing YKA businesses, via the issuance of new YKA shares. The group reiterated that it is expediting expansion plans in China, which involve setting up more large-scale processing facilities in new locations, raising R&D expenditure and venturing into value-add and complementary products like soya sauce, condiments, central kitchen, yeast, sesame, noodles, etc.,” she adds.

OCBC’s equity research analyst Chu Peng has also remained positive on Wilmar due to the long-term benefits that YKA’s listing has given the group.

She also sees upside in recovery of prices for crude palm oil (CPO) and sugar, higher crushing margins in China restocks after the African swine fever (ASF), as well as continued recovery from hotels/restaurants/catering (HORECA) demand. Chu also notes that Wilmar is a beneficiary of renewed confidence on Indonesia’s B30 programme after the country raised its export levy.

Echoing CGS-CIMB’s Ng’s views, Chu believes Wilmar’s business is undervalued; the group is trading at forward price-to-earnings (P/E) of 17 times against YKA’s estimated P/E of 66 times.

“Management attributed the valuation gap to lower liquidity in the Singapore stock market as compared to China and dominance of Wilmar’s products in China. We believe Wilmar’s valuations are likely to be lifted over time with sustained YKA’s valuations and we remain positive on Willmar,” she says.

RHB’s Singapore research team has termed Wilmar’s FY2020 results as marking a “sweet ending to the year”.

Like the analysts from CGS-CIMB and OCBC, the team believes the group’s near-term prospects remain positive.

“In the longer term, it may also list other business units, in order to unlock more latent value,” writes the team.

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“The guidance for 2021 is positive, as management continues to target more expansions in China, targeting complementary businesses like soy sauce, vinegar, and yeast. Demand in China for food products should also continue to be strong, as recovery from COVID-19 continues to pick up pace.”

“The feed and industrial products segment is also expected to remain resilient, with the full-year impact of the recovery from ASF to be realised in 2021. Hog inventory is now at around 90%, compared to end-2017 levels. Rising CPO and sugar prices are also likely to help boost earnings from the plantation and sugar milling divisions,” it adds.

As at 4.10pm, shares in Wilmar are trading 1 cent higher or 0.2% up at $5.41.