Excerpts from DBS report

Analyst: William Simadiputra 

Profiting from external volatility

What’s New
• Solid platform with strong earnings track record

Wilmar

Share price: 
S$4.12

Target: 
S$6.67

• But mispriced as seen as just another palm oil plantation company

• We believe Wilmar earnings should remain relatively steady amid external commodity price volatility and geopolitical tension in 2023

• Maintain BUY with TP of S$6.67


Wilmar Nodeforest1.21
Investment Thesis
Solid platform a shield against external volatility. Wilmar has a strong integrated platform to underpin a steady earnings performance amid external volatility. Wilmar performed well amid the pandemic, geopolitical tensions, and commodity price volatility as it continues to strengthen its integrated and logistics platform.

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 it has less exposure to raw material price volatility, and earnings downside risk is minimal.

"We believe Wilmar deserves to trade at a higher PE multiple vs. its plantation peers, as it has less exposure to raw material price volatility, and 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 into 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 FY23F PE.

Wilmar should trade at a higher PE multiple as it enlarges its footprint in the consumer branded products segment, which has more stable margin outlook.


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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