Excerpts from UOK KH report
| Alpha Picks: Adding In Wilmar Our portfolio fell 1.7% mom in Sep 20, but outperformed the FSSTI’s decline of 2.6% mom. Outperformers include our recent additions, Yangzijiang and Frencken. Top decliners were Singtel and Food Empire. For Oct 20, we add in Wilmar as we believe it is a much cheaper entry into YKA, which we expect would have a strong listing debut given the overwhelming response. |
WHAT’S NEW
• Outperformed in 3Q20. On an equal-weighted basis, our portfolio’s 8.2% return in 3Q20 beat the FSSTI’s and MSCI World Index’s gains of 5.0% and 7.5% over the quarter respectively.
• Reviewing our picks in September. Our portfolio fell 1.7% mom in Sep 20 but outperformed the FSSTI’s steeper decline of 2.6% mom.
With the exception of some the recent additions to our portfolio - Yangzijiang Shipbuilding (Yangzijiang) (+8.2% mom) and Frencken Group (Frencken) (+4.6% mom) - most of our picks registered declines within the range of 1.5-7.8%.
Singtel (-7.8% mom) and Food Empire (-5.6% mom) were the top decliners.
• Adding in Wilmar. Based on the IPO price, the implied market capitalisation of Yihai Kerry Arawana (YKA) is Rmb139b (US$20.6b).
This suggests that excluding the 90% stake valuation in YKA, the other 40% of Wilmar International’s (Wilmar) non-YKA core net profit of US$461m in 2019 is being valued at only 4.5x 2019 PE.
This undervalues Wilmar’s other divisions and positions Wilmar as a much cheaper entry into YKA, in our view.
In addition, given the overwhelming response to YKA’s IPO, we are expecting a strong debut on Day 1 of listing and this will likely be a strong catalyst to Wilmar’s share price.
| Wilmar International – BUY (Leow Huey Chuen & Jacquelyn Yow) • Non-YKA assets undervalued. Wilmar announced that YKA’s IPO price at Rmb25.70, translating into 31.1x 2019 PE.  Range of products from Yihai Kerry Arowana (YKA).The IPO price implies a potential market capitalisation of Rmb139b (or US$20.6b) for YKA upon listing and that it will have a similar market capitalisation to Wilmar. Excluding YKA’s 2019 earnings, it suggests that the other 40% non-YKA core net profit of US$461m is valued at only 4.5x 2019 PE. This undervalues the other divisions and also positions Wilmar as a much cheaper entry into YKA. • Expect strong debut upon YKA listing in mid-October. We are likely to see a strong price performance on YKA’s listing day (share prices of recent IPOs at ChiNext were up 43- 1,061% on Day 1 of listing). Basing on the overwhelming response to the YKA’s IPO offering, we are expecting strong debut on Day 1 of listing and this is likely to be a strong catalyst to Wilmar’s share price. Share Price Catalysts • Events: YKA listing in mid-October, and 3Q20 results in mid-Nov 20. • Timeline: 1-3 months. |
Full report here.