SINGAPORE (July 1): Wilmar International offers safe haven against uncertainty from the US-China trade war, given the group’s exposure to essential food categories, says Maybank KimEng.
Maybank says up to 90% of Wilmar’s revenues are generated in emerging markets. In China, Wilmar has market leading positions in essential food items such as cooking oil, flour, rice, sugar and animal feed inputs.
“This provides a defensible moat to take advantage of rising affluence as well as increasing demand for food quality and safety,” says analyst Thilan Wickramasinghe in a June 28 report.
Integrated from origination, processing to distribution means Wilmar is able to unlock value across their supply chains while providing a counter-cyclical buffer, says Wickramasinghe.
For 2013-2018 volumes grew at 4% CAGR. For 2018-2021E, Maybank is forecasting volumes growth of 2.6% CAGR and core-earnings growth of 7% CAGR.
Meanwhile, although African Swine Flu (ASF) should lower demand for soymeal from lower hog production in the near term, the disease will hasten the pace of small farm consolidation and force a shift towards industrial feeding, says Wickramasinghe. This should boost Wilmar’s volumes in the medium term.
In addition, China’s substitution of soy oil with palm oil, higher Indonesian bio-diesel mandates and higher palm oil consumption in India should all contribute towards better margins and rising ROEs.
“We initiate with a ‘buy’. Our $4.21 DCF and peer P/E blended target price offers 16% upside,” says the analyst, adding a potential listing of its Chinese assets in China, where peer valuations are 1.9x higher, is an upside catalyst.
As at 5pm, shares in Wilmar closed 4 cents higher at $3.74 or 1.03 times FY20E book value.
