The group intends to leverage its strong distribution presence in China to drive growth in other product adjacencies like rice, flour and other consumer food products.Meanwhile the group continues to dominate the consumer pack space, with 45% market share, and maintains the leading share of oil seeds crushing volume in China. Wilmar’s China operations posted a net profit of US$630mn in 2008, making it one of the largest food companies in China.
With 300,00 ha of unplanted land, the group can continue to add to its current planted acreage of 225,000ha, driving volume growth. In addition, processing 40% of the world’s palm oil provides the group significant market intelligence to manage its risks.
Excluding liquid working capital, Wilmar’s gearing is only 0.07x. Following the aggressive expansion over the past couple of years, the pace of capex will likely slow. However the group is likely to pursue M&A opportunities.
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.
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