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Wilmar - MRE Maintains $6.60 Target Price
09 Feb 10

Macquarie is pleased to list the following new warrants today:

Call UOB MBL eCW100603 (KI8W) exercise price $18.00.*

Call Wilmar MBLeCW101103 (KI7W) exercise price $6.60.*


The world’s largest palm-oil trader Wilmar International, announced last week that its Chinese unit’s application to list in Hong Kong has lapsed and that the application will not be renewed. Since the announcement, Wilmar has backpedalled 7.5% to finish at $6.02 yesterday – its lowest in six months. In a note published on February 1, Macquarie Research Equities (MRE) stated their Neutral stance on the stock had a 12-month target price of $6.60…

No IPO near term
Wilmar International indicates that it has no current intention to submit a fresh listing application to the HKEX for the listing of Wilmar China. However, MRE notes that HKEX considers any new application submitted within three months of a lapsed application as a renewal/continuance of the original application, so technically, the listing "event" can still be activated within the next 3 months.


IPO in any case does not turn Wilmar into a high growth firm
The planned move to add “domestic ownership” to its Chinese unit via an IPO was to allow Wilmar China to outgrow foreign competitors constrained by rules introduced in 2008 that limit capacity expansion. However, with already a 25% share of China’s soy crushings, Wilmar's aggregate volume growth will likely not exceed 10% pa.


M&A may be required to accelerate Wilmar’s growth profile
With limited volume growth given its already large scale and market share, big scale M&A may be required to accelerate Wilmar’s growth profile.


Action and recommendation
MRE remains Neutral on the stock, with a 12-month target price of S$6.60 for Wilmar International (implying 20x current year PER) already imputes a 25x PER for Wilmar China, so this formal announcement from the company should cause event investors holding out for a listing to move out of the name.

MRE’s investment view differs from consensus on several counts :- 1) MRE believes Wilmar’s already large share (at nearly 50% of global volumes in palm trading and 25% of China's soy crushings) means that this gives it a stable earnings base but not one which is fast growing and 2) it will take time for the growth of its rice and flour distribution network in China to meaningfully add to its profit base.  

 

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