Why it is important to be 'more Chinese' when growing bigger in China Wilmar's intention to list its China operation drew most questions at the analyst briefing. Management hopes to list its China operations (c.U$600m in profits in FY08, formidable dominance in basic food distribution & pro-cessing - #1 positions in oilseed crushing, edible oil processing, consumerpack oils, specialty fats & oleo-chem, growing rice & flour merchandiser) in HK this year. This exercise should 1) unlock value of its China operations - management believes a HK listing would accord a higher valuation, 2) allow Wilmar to have a stronger Chinese 'identity' at a time when food security is of increasing importance and 3) offer Chinese institutions the opportunity to own part of China's leading basic food processor and mechandiser.
Listing could raise c.US$4bn; or >US$0.30/share dividend Wilmar intends to list 20-30% of its China operations. Assuming a 20x PER multiple (high end of Chinese food operators), the listing could raise US $2.4-3.6bn, we estimate. Wilmar intends to return to shareholders a portion of the proceeds in the form of dividends.Despite trading at 20-40% valuation premium against global peers, an accelerated listing timeline in combination with a potential sharper-than-expected recovery in the Chinese economy could lift valuations beyond fundamentals in the near term.
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