SINGAPORE (Mar 30): DBS Group Research has a “buy” recommendation on Wilmar with a lowered target price of $4.00 from $4.60 previously.

Wilmar’s recent share price correction has pulled down its valuation to an attractive FY20 price-to-earnings (PE) of 13.3 times, close to -1SD of its five years PE. The stock is also trading below its book, at a FY20 price-to-book ratio of 0.8 times.

With uncertainties surrounding the Covid-19 outbreak, the market has stripped out the potential upside from the listing of its China operations with the group’s current PE value. Nonetheless, the listing is still on track but has been slightly delayed to 3Q20.

In a Friday report, analyst William Simadiputra says, “Its share price level is not reflective of WIL’s true presence in China. The market pegged valuation to ‘black-box’ commodities linked multiples back in 2017, before the China operation listing was announced.”

The analyst believes that the market has ignored the group’s presence in China as a leading player in some food segments – flour and edible oils. These are staple food and less sensitive to discretionary spending amid the Covid-19 pandemic.

Although Wilmar’s margins are vulnerable to the volatility of commodity prices which is the key risk to its short-term earnings, the group’s valuation at current share price implies that the market has anticipated up to 30% hit on its 2020 earnings.

“We believe that Wilmar can sustain during China’s economic turbulence caused by the Covid-19 outbreak. Its strong presence in China’s staple food market means that its well-diversified product line is irreplaceable, even amid the tough environment currently,” says Simadiputra.

The analyst believes that the growing contribution from the group’s consumer branded products in the food market segment will provide a cushion on its earnings amid volatile commodity prices.

Overall, the analyst sees Wilmar as attractively valued and provides ample margin of safety.

As at 1.50pm, shares in Wilmar are trading 2.17% lower at $3.15. The stock has a FY20 dividend yield of 3.5%.