Key Arguments :
Strive to perform. We believe Wilmar will continue to post positive earnings growth in 2022, as we believe it can capitalise on the high raw material cost and good vegetable oils refining margin via its extensive refining and manufacturing facilities. Another leg of earnings growth will be the improving soybean crushing margin and volume in China.
Wilmar is trading at plantation companies’ multiples. We believe Wilmar deserves a higher PE multiple vs. its plantation peers, since beside the high raw material plays, earnings downside risk is minimal. In case the reversal on commodities price, Wilmar’s packaged consumer products margin and earnings set to buffer its earnings performance
Undervalued amid strong earnings performance and Wilmar’s transition to consumer space. With its well-established manufacturing and logistics facilities, Wilmar could penetrate further into consumer segments with stronger pricing power such as in Condiment and Noodles.
Riding on China’s growing food industry. Based on current trends, the COVID-19 situation in China seems to be under control as well as a recovering economy, we expect domestic consumption of oilseeds and other food products to continue benefitting Wilmar.
Valuation
Wilmar’s TP of S$6.67 is based on sum of parts (SOP) methodology. Our TP is derived from a sum of parts valuation. In 2022, considering the high commodities price situation, we assume Wilmar’s China and non-China operation earnings earning split will be 40% and 60% vs. the average historical split ex. 2021 of 60% and 40% respectively. We raise our FY22 earnings by 6% to US$1.63bn (+3.8% y-o-y) mainly on improving soybean crushing margin outlook.
Potential Catalyst
We believe Wilmar will post strong 4Q21 earnings of US$350m-US$400m. We continue to believe Wilmar deserves a higher PE multiple mainly on its well-established supply chain system and strong presence in commodity-producing countries, on top of its consumer branded goods business expansion . Wilmar can maintain a solid earnings performance even amid high raw material prices trend and global supply chain disruptions.
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 levels,since the operations could offset YKA’s margin weakness amid rising raw material prices.