UOB Kay Hian has kept its "hold" call on Wilmar International F34 but cut its target price from $3.80 to $3.35 after a lower valuation multiple was applied.
The cut was no thanks to short-term negative sentiment anticipated over its recent alleged involvement with a palm oil fraud case in China, which has been denied by Wilmar and its China-listed subsidiary Yihai Kerry Arawana (YKA) on Jan 12.
According to analysts in their Jan 23 note, Leow Huey Chuen and Jacquelyn Yow Hui Li say that the allegation of fraud in China will only have a "marginal financial impact" on the company but may raise "concerns on governance".
As described by UOB Kay Hian, two other entities Anhui Whywin International Co and Yunnan Huijia Import & Export Co were the ones under probe.
However, Liu Degang, a former general manager of Guangzhou Yihai, a unit of YKA, was alleged to have been bribed.
Guangzhou Yihai found out on Jan 8 about Liu's impending charge for assisting in an offence through a call from the local prosecutor's office.
YKA then issued its statement on Jan 12, as it was complying with China listing rules, which require the disclosure of all criminal charges against YKA or its subsidiaries, regardless of materiality.
The analysts flag that Guangzhou Yihai's involvement was mainly as a transit storage provider and it has denied any knowledge of fraudulent activities.
"Despite this, short-term negative sentiment on the company's share price is anticipated, given its association with this ongoing pending alleged corruption case," state Leow and Yow.
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Meanwhile, the UOB Kay Hian analysts are projecting the company to report a core net profit of between US$320 million and US$350 million for its 4QFY2023 ended December 2023, bringing full-year earnings to between US$1.2 billion and US$1.23 billion.
"Its operations in China have shown some positive developments; however, these improvements have not been substantial enough to offset the challenges stemming from the palm refining business," the analysts note.
Having said so, no thanks to the expected negative sentiment from the alleged fraud case in China, the UOB Kay Hian analysts have lowered their valuation multiple from 25x to 18x, deriving the new target price of $3.35.
Wilmar shares as at 1.51 pm changed hands at $3.26, up 0.62%.
