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Wilmar chairman Kuok buys shares from market at lower price than share options held

Chan Chao Peh
Chan Chao Peh • 4 min read
Wilmar chairman Kuok buys shares from market at lower price than share options held
SINGAPORE (Dec 10): Kuok Khoon Hong, chairman and CEO of Wilmar International, acquired one million of its shares from the market on Nov 30. At an average price of $3.0482 each, Kuok spent just over $3.04 million on the purchase, which was made via an
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SINGAPORE (Dec 10): Kuok Khoon Hong, chairman and CEO of Wilmar International, acquired one million of its shares from the market on Nov 30. At an average price of $3.0482 each, Kuok spent just over $3.04 million on the purchase, which was made via an entity called HPRY Holdings, a privately held investment holding vehicle of which he is a deemed beneficiary.

With this purchase, Kuok’s deemed interest in Wilmar has increased to more than 793.4 million shares. Together with his existing direct interest of 995,000 shares, Kuok has a total interest of more than 794.4 million shares in the company, which works out to a stake of 12.5567%, up from 12.5409% previously.

The most recent changes in insiders’ holdings in the company was on Nov 14, when Wilmar announced that share options awarded to directors and certain company executives had expired without being exercised.

Under terms of the Nov 13, 2013 options exercise, directors and the executives have the right to exercise a total of more than 49.3 million shares at $3.44 a share. Wilmar shares closed at $3.19 on Nov 14, which means it is cheaper to buy from the market. Kuok let options for 1.5 million shares expire, leaving him with 2.5 million options remaining.

Another director, Juan Ricardo Luciano, let his 400,000 options lapse too, leaving him with 900,000 option shares. Luciano is the current chairman and CEO of Archer Daniels Midland Co, which is Wilmar’s second-largest shareholder with its 24.9% stake.

Year to date, Wilmar shares have barely changed. They closed on Dec 5 at $3.14, which is around the same level as when the options were awarded in November 2013. At current levels, the shares are valued at 10.64 times historical earnings, giving the company a market value of some $20 billion.

For the three months ended Sept 30, the company grew its earnings by 10.7% y-o-y to US$407.4 million ($557 million). Revenue in the same period rose 4.3% y-o-y to US$11.6 billion. For the nine months ended Sept 30, earnings increased 20.6% y-o-y to US$927.1 million. Revenue over the same period grew 3.9% to US$33.6 billion.

Wilmar’s earnings were driven by its tropical oils division, which covers its plantation, manufacturing and merchandising business activities. Pre-tax earnings nearly doubled to US$155.5 million for 3QFY2018, from US$80.6 million in 3QFY2017. The improvement can be attributed to higher production volume and better yields.

Earnings at the company’s oilseed and grains division, which covers the manufacturing and sale of consumer products, also improved from 3QFY2017 to 3QFY2018, although by a smaller 17%. For the three months ended Sept 30, this division earned a pre-tax profit of US$296.9 million, thanks to better crush margins and higher sales to consumers.

There were drags on the company’s bottom line. The others segment, which includes fertiliser and its investment portfolio, slipped into the red with a loss of US$7.4 million in 3QFY2018. In the year-earlier quarter, it generated pre-tax earnings of US$56.5 million.

Kuok notes that Wilmar’s investments in new processing plants over the past few years in China, Indonesia and India have helped the company generate better earnings. “We expect most of our operations to continue to do well in the coming quarter, owing to generally better processing margins. Overall, we are cautiously optimistic that performance for the rest of the year will be satisfactory,” he adds.

Analysts such as RHB Securities’ Juliana Cai are upbeat on the stock. The key catalyst is the spin-off of Wilmar’s China business into a separately listed entity. Cai, who has a price target of $3.69 on Wilmar, notes that Wilmar’s ongoing capital expenditure of some US$1 billion can be easily funded via the operating earnings of more than US$2 billion. She believes proceeds from the IPO will be paid out as special dividends.

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