Wilmar - Raising Estimates and Target Price Post Briefing

Raising net profit estimate and target price — Net impact from our revision in PBT/tonne and volume assumptions for the merchandising & processing and consumer products division result in a 13%-16% increase in FY09E- FY11E net profit estimates. In line with the increase in earnings and pegging a higher P/E multiple for consumer products segment (based on current sector average) our SOTP valuation has also been raised by 22% to S$5.30.

Revising upwards merchandising & processing margins — Given strong 1Q09 performance, we are adjusting upwards our PBT/tonne estimate. We do not expect margins in the following quarters to be as good as 1Q but our FY09E PBT/tonne appears conservative at this juncture. For palm & laurics, we have raised our assumption from US$22/t to US$30/t. While for oilseeds & grains we have raised our assumption from US$23/t to US$29/t.

Raising margins for consumer products too — PBT margin for this division was exceptional at US$106/t (the highest ever achieved historically). Again, we do not expect 1Q09 margin to be sustainable. The higher margin in 1Q was due to lower feedstock prices. We are revising upwards PBT/tonne for this division to US$55/t from US$38/t previously.

Lowering sales volume assumption — We are revising downwards sales volume by 4% for the palm & laurics segment. Volume was down by 16% in 1Q09 as management adopted a cautious risk management stance following increased industry defaults at end-2008. We still expect a recovery in volume in subsequent quarters and now assume a 10% growth in FY09E. We are also cutting our sales volume assumption for consumer products by 15%.

Listing in China — Wilmar plans to list 20-30% of its China business. This is to unlock shareholders value and, according to management, is a strategic plan to have Chinese investors participate in the growth. China contributed close to US$600m in profit last year (40% of group profits). We believe Wilmar could potentially raise US$2.4-3.6bn assuming 20x P/E and between US$3-4.5bn if assuming a P/E of 25x. The cash raised could be used to pay out more dividends or for expansion. Preference would be to list in Shanghai (takes a longer time) but we believe management is realistic about the situation and might list in Hong Kong instead which could be as soon as 6 months down the road.

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