RHB Group Research is reiterating its “buy” call on Wilmar International with a target price of $5.45, as its outlook seems positive.
See also: Wilmar subsidiary to IPO at issue price of $5.16; expects to raise $2.79 bil
Firstly, analyst Juliana Cai is upbeat on Yihai Kerry Arawana’s (YKA) IPO and its issue price of CNY25.7, which implies a FY19 P/E of 31.1 times and a CNY139 billion ($27.8 billion) market capitalisation.
Comparatively, Wilmar’s share price looks much more attractive, as its 90% stake in YKA already accounts for 87% of its market cap, despite the latter’s contribution to its bottomline (about 60%).
See also: Analysts cheer for Wilmar as China listing is a go
“As YKA’s Shenzhen listing draws near, Wilmar’s share price is likely to remain supported, with a potential rerating coming from the post-IPO performance of YKA’s share price,” says Cai
“We continue to be upbeat on YKA’s share price outlook post-listing, as China’s IPO market remains robust,” she adds.
The 35 new stocks recently listed on the Shenzhen ChiNext Board have recorded an average YTD gain of 161% and the street is also positive on YKA’s prospects, and expects an EPS growth of 11-15% per annum over FY2021-2022.
“In addition, we believe there is sufficient investor interest on YKA, as its shares are oversubscribed by 600 times by offline investors, and oversubscribed by 1,750 times by online retail investors,” says Cai.
See also: Wilmar's share price offers cheaper, more liquid entry to YKA, says CGS-CIMB
Timeline-wise, Wilmar’s timetable stated that YKA will publish the issuance results, as well as its updated prospectus on October 9, with the listing expected to happen over the next two weeks.
Another thing that the analyst is optimistic about is Wilmar’s upcoming 3QFY2020 earnings.
The food products and feed & industrial products segments should see a continued strong performance, bolstered by the consumption recovery in China, as well as higher soft oil and soymeal prices in 3QFY2020.
“While soybean prices have also increased, we believe the group has accumulated adequate beans in its inventory – so we should see a laggard effect on its raw material cost,” says Cai.
Meanwhile, plantation and sugar milling should also benefit from a seasonal high in 3QFY2020, as well as improving CPO and sugar prices.
As at 11.20am, shares in Wilmar are trading at $4.56 or 15.8 times FY2020 P/E and 1.2 times P/B. The stock has a dividend yield of 2.7%.
