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Wilmar International: Integrated business provides competitive advantage

Khairani Afifi Noordin
Khairani Afifi Noordin • 3 min read
Wilmar International: Integrated business provides competitive advantage
The agribusiness company continues to be one of the top picks of analysts covering the sector. Photo: Bloomberg
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Despite 2022 being a volatile year for crude palm oil, Wilmar International’s resiliency allowed it to outperform its peers, mainly due to its integrated and diversified business model.

The agribusiness company continues to be one of the top picks of analysts covering the sector as they are optimistic about the business, highlighting its long-term solid prospects and investments in new facilities, which should expand its earning base.

Last year, Wilmar’s share price climbed to a peak of $4.87 on March 24 before losing all of its gains to its year’s low of $3.48, just days before its 3QFY2022 ended September 2022 results announcement.

William Simadiputra of DBS Group Research notes that Wilmar’s valuation is still below its five-year average P/E multiple, which is an opportunity for investors to own a “well-integrated” food company with a strong earnings track record. “The company is now mispriced as an upstream palm oil company despite its strong presence in midstream to downstream of food segments,” writes Simadiputra in his Jan 12 note.

“Wilmar’s current valuation is distorted as Wilmar is seen as a key palm oil and refined palm oil exporter from Indonesia,” says Simadiputra, who has a “buy” call and a $6.67 target price on the stock.

With its integrated business platform ranging from plantation to consumer products, Wilmar has the flexibility to adapt to external challenges. “With its earnings track record, Wilmar deserves a better valuation premium to its upstream plantation peers,” he adds.

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CGS-CIMB Research analysts Ivy Ng Lee Fang and Nagulan Ravi attribute the share price correction in November last year to concerns over rising interest rates, the strong US dollar, weaker commodity prices and geological risks.

However, Wilmar’s share price rebounded after its 3QFY2022 announcement. The company posted its third straight record quarter in 2022, with core net profit surging 38.2% to US$796.7 million ($1.06 billion) compared to US$576.4 million in the previous quarter.

Following its 3QFY2022 results announcement, multiple analysts recommended a “buy” for the counter, although Maybank Securities’ analyst Thilan Wickramasinghe maintains a “hold” call. In his report, Wickramasinghe points out that Wilmar’s performance during the quarter could be difficult to repeat due to slower economic growth in China, prolonged lockdowns and a recessionary global environment. Since then, China has announced it has lifted most domestic restrictions and opened up its borders to international travel.

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Wilmar’s operations in China are conducted via its subsidiary Yihai Kerry Arawana (YKA), a company founded by Wilmar CEO Kuok Khoon Hong and his uncle, Malaysian tycoon Robert Kuok. Wilmar owns 89.99% of YKA’s shares, which are listed on the Shenzhen Stock Exchange ChiNext Board.

Through YKA, Wilmar is expanding into the central kitchen business. In March last year, it was announced that YKA’s construction of the Central Kitchen Food Park (CKFP) was expedited, with the first facility in Hangzhou commencing a trial production stage. Four more CKFP facilities in Langfang, Xi’an, Chongqing and Zhukou were still under construction.

Agreeing with Wickramasinghe, Ng and Ravi also describe the repeat of the stellar results in 3QFY2022 as a “tall order”, noting that Wilmar is cautiously optimistic about its 4QFY2022 earnings performance. The analysts cite Wilmar’s expectations of a decline in the palm processing margin, unsustainable hedging gains and lower effective tax rates.

Despite this, the CGS-CIMB analysts note that a more robust performance from YKA will partly offset Wilmar’s decline in margins and gains due to positive crush margins in China and better profit margins for its food products segment

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