Analysts from CGS-CIMB Research, Maybank Kim Eng and RHB Group Research have kept their “buy” calls on Wilmar International.
See also: 'Buy' Wilmar for higher-than-expected results and inexpensive valuation
CGS-CIMB analysts Ivy Ng and Nagulan Ravi have kept their target price of $6.15 on Wilmar as they see three emerging catalysts for the group.
The potential listing of its 50%-owned Adani Wilmar (AWL) is one of them, better results for the 2HFY2021 is another, while closing the gap in valuations for Wilmar and its 89.99%-owned subsidiary Yihai Kerry Arawana (YKA) is the third.
“In the medium term, we see its relentless pursuit to unlock shareholder value as a key catalyst for the stock,” write Ng and Ravi, in an Aug 16 report.
The analysts add that the group’s goal to unlock shareholder value is unlikely to stop at the listing of AWL.
The listing of AWL, which is targeted to take place in the 4QFY2021, could boost Wilmar’s value by 33 cents to 52 cents per share.
“If the market is unable to appreciate the value of its parts in the medium to long term, the potential options it could consider for value unlocking include share buy-backs, distribution of its listed entities’ shares back to shareholders, and/or listing of other parts of the group,” say the analysts.
Meanwhile, the group’s performance in the 2HFY2021 is estimated to be better on the back of seasonal factors as well as better performances from its palm, sugar and soybean crush segments.
Finally, Wilmar’s stake in YKA is worth US$55 billion ($74.56 billion), significantly higher than its market cap of US$21 billion.
“This suggests that investors are severely undervaluing the sum of its parts, which will become more glaring when 50%-owned AWL is listed,” write the analysts, who suggest that one way to realise value is to distribute back some of the shares of its listed entities to its shareholders.
Their current target price is “undervalued” and offers a cheaper and more liquid entry to its 89.99%-owned YKA, they add.
Downside risks, however, are the inability to pass on the higher commodity prices to consumers.
Maybank Kim Eng analyst Thilan Wickramasinghe has lowered his target price on Wilmar to $6.03 from $6.21 previously, as Wilmar’s results stood in line with his estimates.
Higher commodity prices, on the other hand, were a “double-edged sword”. While they supported performance in upstream plantations and downstream refining, the group’s consumer margins saw pressure from higher input costs.
That said, “weakness here as well as soybean crushing should ease in 2HFY2021 from better average selling prices (ASPs),” he writes.
The listing of AWL is consistent with the group’s strategy of unlocking value, notes Wickramasinghe, and it is likely to improve valuation transparency for the parent company.
The potential for similar transactions with operations in Asean and Africa could be upside catalysts.
To this end, Wickramasinghe has lowered his profit after tax (PAT) for the FY2021 to FY2023 by 3% to 4%, and by that extension, his target price.
“Wilmar is now trading at mean P/E and a 44% discount to its peer group. Value unlocking and improving operating conditions should support better momentum going forward, we believe,” he says.
Upside swing factors include the closing of the gap between Wilmar and YKA, a faster recovery in Covid-19 cases, as well as the monetisation of a new product under research and development (R&D) through their investments in biotechnology, clinical nutrition and artificial intelligence (AI).
For more stories about where the money flows, click here for our Capital section
Meanwhile, a revocation of licenses, operating bans and activism due to environmental, social and governance (ESG) factors can have a “material downside effect”.
New waves of Covid-19 cases, limiting credit facilities or imposing utilisation restrictions by lenders may have a “significant impact”, says Wickramasinghe.
The Singapore research team at RHB has kept its target price of $5.45 as it deems the group’s prospects ahead to be “brighter”.
Wilmar’s management says it expects its food products segment to perform better in the 2HFY2021 on the back of higher seasonal demand and the impact of higher selling prices.
“We believe Wilmar remains undervalued, trading at 12.8 times FY2022 P/E vs China peers’ 32-37 times,” writes the RHB team.
As at 12.29pm, shares in Wilmar are trading 3 cents lower or 0.7% down at $4.36, or 1.1 times FY2021 P/B with a dividend yield of 2.9%, according to RHB’s estimates.
Photo: Wilmar
