Well diversified markets. Headquartered in Singapore, its operations are located in over 20 countries across four continents, with a primary focus on Indonesia, Malaysia, China, India and Europe. We understand that Wilmar currently controls about 25% of the world's CPO (crude palm oil) refining capacity and 25% of China's soy bean crushing capacity. Wilmar also has a 40% share of the global CPO sales and nearly 50% share of China's consumer pack edible oil market. In addition, it is also one of the largest edible oils refiners and a leading producer of consumer pack edible oils in India. It also intends to develop an integrated agri-business with experienced partners in West Africa.
Potential listing of China operations. Given its extensive network and business in China, Wilmar has plans to spin off its business there with a primary listing either in Hong Kong or China. According to management, it plans to float 20-30% of its China business, but did not rule out selling more. Benefits of the move include unlocking value for existing shareholders, the ability to expand into other areas with the China listco etc. We believe that it is a good move for the reasons mentioned by the company and we also see the potential spin-offs involving its other sizeable operations overseas.
Initiate coverage with BUY and S$5.64 fair value. Despite its integrated agri-business model, Wilmar remains subject to the volatile fluctuations in the prices of vegetable oil like soy bean and CPO, which remains a key risk for us. But given that cooking oil is a necessity and demand should be fairly inelastic, we believe it may be less of an issue for more downstream plays like Wilmar than pure plantation plays. As such, we initiate coverage on the stock with S$5.64 fair value (based on 18x blended FY09/10 PER) and a BUY rating.
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