SINGAPORE. (Mar 12): CGS-CIMB Research is “neutral” on Wilmar's plans to buy the remaining 50% stake in Goodman Fielder (GF) as the acquisition deal should not impact near-term earnings.

The GF group is a regional food company across Australia, New Zealand and Asia Pacific. It manufactures and sells a wide range of food products. The company also owns brands such as Wonder White bread, Meadow Lea margarine and Praise mayonnaise.

Wilmar this morning announced it was planning to buy a 50% stake in First Pacific Wilmar (FPW) from First Pacific Singapore Holdings for US$275 million. FPW owns 100% stake in GF. The deal is expected to be completed in 4Q19 and that it will result in First Pacific recording a non-recurring loss of about US$280m.

See: Wilmar in US$275 mil takeover deal to fully acquire food company Goodman Fielder

Wilmar had invested in GF as early as Feb 29 2012, when it bought a 10.1% direct stake in GF in the open market, reportedly for US$124 million. In 2015, First Pacific and Wilmar paid a combined US$934 million to acquire 100% stake in GF via FPW. The acquisition raised Wilmar’s stake in GF via FPW to 50%.

In a Tuesday report, CGS-CIMB analyst Ivy Ng Lee Fang estimates it will cost Wilmar around US$275-325 million to acquire the additional 50% stake in FPW. Ng says the acquisition is not material as it represents 1.7-2% of Wilmar’s shareholders' funds.

But this is 28-49% lower than Wilmar’s investment value of 50% stake in FPW of US$543.4 million in its book as at Dec 31 2017.

Ng reckons this could be due to the more challenging operating environment GF faces in Australia. Following the proposed deal, the analyst estimates Wilmar’s investment in FPW could be raised to about US$818-868 million.

“We are neutral on this development as it is unlikely to significantly impact Wimar’s earnings in the near term,” says Ng.

According to Wilmar’s annual reports, FPW posted US$21.9 million/US$37.1 million/ (US$10.8 million) net earnings in FY15/16/17.

“We gather that FPW's losses in FY17 were due to restructuring costs. We estimate that the proposal will have minimal or less than 1% impact on our earnings forecasts for Wilmar, but could raise its net gearing position as it will need to consolidate FPW's debts. We are positive on the investment in the longer term as it will help Wilmar expand its consumer products division.” adds Ng.

As at 2.41pm, shares in Wilmar are up 5 cents at $3.25 or 11.4 times FY21F earnings.