Wilmar International saw its share price despite the success of its 89.99%-owned Chinese subsidiary Yihai Kerry Arawana’s (YKA) IPO on Oct 15.
YKA’s share price more than doubled in its first day on the ChiNext board, and closed 118% up on the same day at RMB56 ($11.33) per share, compared to its IPO price of RMB25.7 per share, say CGS-CIMB analysts Ivy Ng and Nagulan Ravi in an Oct 16 note.
During its first day of trading, YKA’s shares spiked up to RMB62.65 in the last half hour of trade, the analysts add.
Ng and Ravi are maintaining their ‘add’ call on the company, with an unchanged target price of $5.53.
See: YKA listing expected to be catalyst to Wilmar share price: UOB Kay Hian
Despite the surge in YKA’s share price, Wilmar’s share price fell 6.4%, suggesting that the holding company is underappreciated with its trailing market cap, note Ng and Ravi.
“This came as a surprise to us as, in most instances, the share price of the holding company tends to react positively to a successful listing of its key subsidiary as the exercise helps unlock the value of its key businesses,” say Ng and Ravi.
See also: Analysts cheer for Wilmar as China listing is a go
In addition, the analysts are of the view that the contrasting performance between Wilmar and YKA’s share prices could be due to a share overhang from the earlier placement of 2.68% of Wilmar’s total shares by one of its largest shareholders, Archers Daniels Midland (ADM), at $4.40 per share in August.
“Investors who took the placement may have sold Wilmar’s shares to lock in quick trading gains when its share price recently surged to as high as $4.74 per share on the news of the China IPO. Also, some investors may have taken the view that the YKA IPO was the sole catalyst driving the re-rating of Wilmar, following which, the interest in Wilmar’s shares may subside,” say Ng and Ravi.
See also: Smooth sailing ahead for Wilmar
YKA’s share sale surpassed CGN Power Co.’s RMB12.6 billion listing in 2019 to be the largest IPO ever in Shenzhen, according to data compiled by Bloomberg. To recap, YKA’s IPO raised RMB13.9 billion via issuance of 10% new shares, note Ng and Ravi.
“We think the negative share price reaction could be temporary and the listing of YKA is a long-term positive as it allows investors to better appreciate the true value of Wilmar’s businesses in China. At the same time, it will allow YKA to grow at a faster rate in China,” say Ng and Ravi.
From a valuation perspective, Wilmar trades at a forward P/E of 16x against YKA’s 68x, highlight the analysts. “We think the valuation gap will narrow, favouring Wilmar.”
As at 11.42am, shares in Wilmar International are trading 5 cents lower, or 1.11% down, at $4.44.
