UOB Kay Hian’s Leow Huey Chuen and Jacquelyn Yow have maintained an unchanged “buy” rating and target price of $5.50 on the stock, pointing at the company’s ESG practices that “drive more positive impact.”
In a July 7 note, the analysts note that the company is one of the best in sustainable practices in the palm industry, being listed in the World Dow Jones Sustainability Index, among others.
As of December 2021, 98.2% (23.6 million tonnes) of Wilmar’s palm oil is traceable to the mills, and 83.5% of volume across Wilmar’s global supply chains is from suppliers that have at least company group-level commitment/action plans to address No Deforestation, No Peat and No Exploitation (NDPE) requirements.
68% of its global supply chain is also traceable to the estates, and Wilmar targets to hit 100% traceability to the mills by 2023.
Furthermore, Wilmar is the first in the palm sector to publish a human rights framework, emphasising human rights such as child protection, the women’s charter and more.
The company also provides support for smallholders - small farmers whose farms account for their principal incomes - which make up 7.1% of Wilmar’s fresh fruit bunch (FFB) supply base.
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They are given high-yield seedlings, high-quality fertilisers and training on sustainable agronomic practices. With these, the yield from the smallholders has also improved significantly.
Moving forward, Wilmar targets to achieve Sustainable Palm Oil (RSPO) certification for all their palm oil mills and supplying plantations by 2025.
Wilmar uses about 13% of its total RSPO production. The analysts say that while Wilmar is trying to increase the usage of RSPO, there is not enough RSPO production capacity for Wilmar’s refineries. Refinery capacity is at 23.6 million tonnes, but there are only 14 million tonnes of RSPO-certified production.
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The company had also recently committed to net-zero emissions by 2050, with 57% of the energy used by Wilmar derived from renewable energy in 2021.
In addition, Wilmar has managed to fulfil the Indonesian government’s requirement to provide community plantations up to at least 20% of the total concession area of the company.
Currently, the company has a total planted area of over 34,032 hectares under government-originated plasma schemes and currently has fully met the regulation requirements.
The analysts also note an increasing demand for sustainability-certified palm products, with Wilmar saying that 91% of its RSPO production sold as RSPO and under schemes such as the International Sustainability & Carbon Certification (ISCC).
They maintain their net profit forecasts for Wilmar at US$1.78 billion ($2.49 billion), US$1.82 billion and US$2 billion for 2022, 2023 and 2024 respectively.
Some catalysts that they see for the company are a stronger recovery in China operations, and a surprise margin upside from the good timing in sourcing of raw materials.
Shares of Wilmar International closed at $4.14 on July 7, with an FY2022 P/B ratio of 0.9 and dividend yield of 3.9%.
