Monday 12 March 2012

Wilmar

OCBC on 12 Mar 2012


Wilmar International Limited (WIL) saw its share price tumble 17.1%, after reporting a muted set of 4Q11 results on 22 Feb, to hit a recent low of S$4.86. YTD, the stock is down 0.6% compared to the STI’s 12.6% rally. Since the stock price has fallen below our unchanged fair value of S$5.15, based on 15x FY12F EPS, we upgrade our rating from Sell to HOLD based on valuation grounds. However, we would turn buyers at around S$4.90 or better. Meanwhile, WIL recently announced that it has paid A$115m to acquire a 10.1% stake in Goodman Fielder, Australasia’s leading listed branded food company, to become its largest shareholder. While there are potential synergies between the two groups, any potential collaboration would take time to crystallise and a further increase in stake in Goodman Fielder could possibly face scrutiny from the Australian authorities. Hence, we hold off adjusting our estimates since any synergistic boost to WIL’s earnings would not happen in the near term.

Punished after muted 4Q11 showing
Wilmar International Limited (WIL) saw its share price tumble 17.1%, after reporting a muted set of 4Q11 results on 22 Feb, to hit a recent low of S$4.86. YTD, the stock is down 0.6% compared to the STI’s 12.6% rally. Since the stock price has fallen below our unchanged fair value of S$5.15, based on 15x FY12F EPS, we upgrade our rating from Sell to HOLD based on valuation grounds. However, we would turn buyers around S$4.90 or better.

Bottom likely passed but margin pressures remain
While we believe WIL’s operations should not worsen from here, it is notable that management continues to maintain a slightly cautious tone. WIL’s Oilseeds & Grains business is especially challenged because of the margin pressures it is facing in China, as a result of prevailing excess capacity. As a recap, WIL’s Oilseeds & Grains segment saw margin falling 98% QoQ to US$0.3/MT. Furthermore, with the exception of its Consumer Pack segment, WIL’s all other business segments experienced QoQ margin contraction in 4Q11.

10.1% stake in Goodman Fielder
WIL recently announced that it has paid A$115m to acquire a 10.1% stake in Goodman Fielder, Australasia’s leading listed branded food company, to become its largest shareholder. WIL said it is currently assessing whether to increase its stake Goodman, which produces baked goods, dairy products, home ingredients and commercial food products. WIL added it will work with Goodman’s management to increase collaboration between the two groups over time. However, while there are potential synergies between the two groups, any potential collaboration would take time to crystallise and a further increase in stake in Goodman could possibly face scrutiny from the Australian authorities. Hence, we hold off adjusting our estimates since any synergistic boost to WIL’s earnings would not happen in the near term. 

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