Wilmar International’s environmental, social and governance (ESG) efforts are “commendable”, according to RHB Bank Singapore’s analysts following a recent sustainability briefing by the listed company, and the agribusiness company is “undervalued” and “inexpensive” when compared against its China-listed peers.
Wilmar has over 500 manufacturing plants and an extensive distribution network covering China, India, Indonesia, and some 50 other countries. Wilmar is involved in three main commodities: oil palm, soybean and sugar.
In November 2021, Wilmar committed to net-zero emissions by 2050 and to align with the Palm Oil Sectoral Roadmap launched at the 2022 United Nations Climate Change Conference (COP27).
To that end, Wilmar has signed up with the Science Based Target initiative (SBTi) to set its emission reduction targets as well as to demonstrate progress of its commitment.
The company is now in the midst of developing time-bound strategies to achieve near-term net-zero emission reduction targets by end-2024, say RHB analysts. As part of the preparation for target setting assessment, its Scope 1 and Scope 2 baselines were externally verified and audited by EY.
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Furthermore, Wilmar has successfully completed the mapping of its Scope 3 emissions. Scope 3 emissions of the group for its baseline year of FY2020 is 155.8 million tonnes of carbon dioxide equivalent (tCO2e), which accounted for 91% of its total emissions.
The Scope 3 emissions mainly came from purchased goods and services, which make up 90% of its total Scope 3 emissions. Now that the mapping of Scope 3 emissions is complete, Wilmar’s next action is to establish plans to address and reduce the emissions.
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In a July 25 note, RHB also highlights that more than 32,000 ha of Wilmar’s oil palm plantations are regarded as conservation areas. In addition, as part of its riparian rehabilitation programme, the company planted more than 30,000 trees beyond its Malaysian operation's designated conservation and riparian areas.
While Wilmar welcomes the EU deforestation policy, it believes that some of the challenges arising from the implementation of the policy need to be worked together with the authorities, notes RHB. “The challenges include the definition of deforestation, current certification standards and best practices not being recognised, and the increased amount of administrative work.”
Regardless, as far as the EU deforestation policy is concerned, Wilmar is confident of being deforestation-free throughout its supply chain, add the RHB analysts.
Thus, RHB maintains its “buy” call on Wilmar with an unchanged target price of $4.65, which represents a 24% upside. The target price includes a 2% ESG premium, based on RHB’s proprietary methodology, on which Wilmar is a top scorer.
“We believe the stock remains undervalued, trading at 11x 2023 price-to-earnings (P/E) versus its China-listed peers’ 20x-40x, while its combined stake in Yihai-Kerry and Adani Wilmar is almost double that of its own market capitalisation,” write RHB’s analysts.
As at 10.37am, shares in Wilmar are trading 5 cents higher, or 1.34% up, at $3.79.
