Wilmar potential listing of China operations could unlock value

We raise our FY09-11F earnings forecasts for Wilmar by an average of about 28% to factor in higher margins post the release of 1Q09 results. Key drivers included wider margins for the consumer pack, palm and laurics business. While management cautioned that the high margins (US$106/tonne for consumer pack and US$55/tonne for palm and laurics) are probably not sustainable, we have raised our margin assumptions to factor in the better-than-expected 1Q09 performance.

Wilmar dominates in China, with a 45% market share in the consumer pack business and a 23% market share in the oil seed crushing business. Wilmar can leverage its large distribution network in China to drive new product adjacencies, such as rice and bottled water. With a profit base in excess of US$600mn in China, a listing of the China operations would help to unlock value for the group, in our view. Price target raised to S$5.68

target to S$5.68 (from S$3.80) to reflect our higher earnings forecasts and the rolling forward of our valuation to FY10F. Wilmar’s dominant franchises, continued interest in commodity plays and the potential listing of its China operations should underpin the share price. The main risk to our price target stems from CPO price fluctuations. We see possible downward price pressure from: 1) a marginal impact from biological tree stress, resulting in higher-than-expected production, particularly from Indonesia; 2) larger-than-expected soybean production in Argentina and Brazil; and 3) more severe demand destruction from a prolonged global economic downturn.

Click here for more Commodity Stocks Technical Analysis

Sponsored Links

Related Posts by Categories