SINGAPORE (Sept 4): The joint venture between agribusiness group Wilmar and premium chocolate maker Aalst Chocolate signifies Wilmar’s foray into a new consumer product segment -- chocolate.
The JV will also enable both companies to further the existing supplier-customer relationship, says DBS in a Monday report.
“Aalst Chocolate will be able to leverage on Wilmar’s vast manufacturing and distribution network in Asia and penetrate further into China, a rapidly growing chocolate market, and expand into new geographies,” says analyst William Simadiputra who has a “hold” and a $3.32 target price for Wilmar.
See: Wilmar buys 50% stake in local chocolate manufacturer Aalst
“While we believe that there is minimal impact to Wilmar’s bottom line from the new joint venture, there may be further plans to investment in manufacturing plants in China, for instance,” adds Simadiputra, “In the medium term, acquisition of upstream cocoa suppliers could be a possibility, to strengthen its foothold as a chocolate manufacturer and retailer across the value chain.”
Last Thursday, Wilmar, through KOG Investments, its wholly-owned subsidiary, acquired a 50% stake in Aalst Chocolate, a Singapore-based manufacturer of premium chocolate.
The remaining 50% stake will be held by Aalst Chocolate’s CEO and founder Richard Lee as well as co-founder and managing director Connie Kwan.
Aalst Chocolate is said to be the only Singapore brand that that can produce both chocolate covertures and compounds.
It exports over 98% of its products, supplying to customers mainly in the industrial sector as well as among professionals and chefs in more than 45 countries globally. It currently owns five brands.
The purchase of shares came from existing shareholders, including International Chocolate & Cocoa Holdings, the investment vehicle of private equity firm KV Asia Capital, Richard Lee and Connie Kwan, as well as via the subscription of new shares.
KV Asia is understood to have invested significantly in Aalst Chocolate in March 2015. The acquisition details, as well as financials of Aalst Chocolate are scarce, although Daiwa understands that Aalst Chocolate has “one of the most cutting edge” manufacturing plants in Singapore having invested $40 million to date.
“The joint venture is a natural downstream investment for Wilmar as there are likely synergies to be derived, as Wilmar’s businesses in oils and specialty fats, sugar and other raw materials, can provide ingredients essential in the chocolate business,” says Simadiputra.
This will help to deepen Wilmar’s foothold in the downstream consumer products, on top of its existing consumer products businesses.
“Our thesis remains intact on our view that Wilmar will gradually extend penetration of its well-established brands via its vast distribution networks in Asia’s growing markets, deepening its foothold in the downstream consumer products business, which will lead to earnings upside potential,” says Simadiputra.
As at 3.11pm, shares of Wilmar are trading 8 cents lower at $3.24. The stock is trading at 13.9x FY17F earnings and 1.0x FY17F book.
