Investors have started appreciating integrated Wilmar Palm & laurics and oilseeds processing account for 75-80% of Wilmar’s business. In our view, the market still does not fully appreciate Wilmar’s evolution into an integrated agribusiness player. However, since the China IPO announcement, the stock has started to decouple from physical commodity price movements, indicating that the listing and adequate information flow should correct this opinion.
China listing to drive valuation for the company At S$7, the implied value of the standalone China business as a geographical entity is US$14.5bn (19x FY10F earnings of US$763mn), which is undemanding versus other agri players in the region. This China valuation would imply that the rest of Wilmar’s business is currently trading at only 12.4x, which we consider attractive. We think a higher valuation of 25-30x for the China business could lead to a further re-rating of Wilmar shares. However, Wilmar would have to significantly raise its earnings growth profile to justify richer valuations.
Leader in China, but growth subject to regulations Wilmar derives ~50% of its business from China. Though it is the leader in the oilseed processing and consumer segments, regulatory risks could constrain future growth. In our view, investments in newer segments like rice/water will take time to begin contributing meaningfully.
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