Excerpts from DBS Research report

Analyst: William Simadiputra

What's new
• Raised FY22F earnings by 16% to US$1.89bn

Wilmar

Share price: 
S$4.69

Target: 
S$6.67

• Expect Wilmar’s upstream-mid stream division to stay profitable

• Wilmar deserves to trade at a premium to peers’ PE

• Maintain BUY with TP of S$6.67


Wilmar Nodeforest1.21

Strong margin outlook

Investment Thesis
Growth drivers in place. We expect Wilmar’s earnings will continue to grow in 2022, as it capitalises on high raw material costs and better vegetable oils refining margin via its extensive refining and manufacturing facilities.

Another leg of earnings growth will be improving soybean crushing margins and volumes in China.

Wilmar deserves to trade at a premium to plantation peers’ PE multiples. We believe Wilmar deserves to trade at a higher PE multiple vs. its plantation peers, as other than exposure to raw material price volatility, earnings downside risk is minimal.

Wilmar’s packaged consumer products’ margins and earnings can help to buffer its earnings performance when commodity prices reverse.

Undervalued amid strong earnings performance and 
Wilmar’s transition to the consumer space. With its well-established manufacturing and logistics facilities, Wilmar could penetrate further into consumer segments with stronger pricing power such as Condiment and Noodles.

Valuation:
We use sum-of-the-parts (SOTP) valuation methodology to arrive at a target price (TP) of S$6.67, which implies 16.5x FY21F PE.

Wilmar should trade at a higher PE multiple as it enlarges its footprint in the consumer branded products segment, which has better margins.


Where we differ:
Wilmar is undervalued amid its transition into a consumer company. We believe Wilmar ex. China operations is undervalued at the current share price, given that these operations could offset YKA’s weak margins amid rising raw material prices.

Key Risks to Our View:
Worse-than-expected margin performance. If Wilmar fails to secure favourable raw materials at a good price, it may not be able to maintain its positive earnings performance.


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