The lower target price is premised on a lower valuation multiple of 10x FY2026 earnings, which is -0.5 s.d. from Wilmar's 5-year average, versus 11x previously.
The lower multiple is to take into account growing uncertainty in Indonesia, one of the company's key markets.
According to Yow, the Indonesian government's plan to confiscate over 1 million hectares of allegedly illegal private oil palm plantations may impact Wilmar's significant land holdings of some 150,000 hectares, presenting a risk to its future crude palm oil production.
Based on her earnings sensitivity analysis, Yow figures that a 5% loss of Wilmar’s land in Indonesia would result in a 1.5% decline in net profit.
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Separately, in an April 16 report by Reuters, an unnamed employee of Wilmar was arrested in Indonesia on graft charges related to corruption in obtaining export permits.
Just on April 14, Wilmar said investigations "so far have not involved" the company or any of its employees.
"We will assist in any investigation if we are called upon. We believe we are not guilty of the charges as our actions during that period to increase the supply of palm oil to the market, despite the additional cost incurred, was intended to help the government improve domestic supplies and reduce prices.
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"We wish to reiterate that the Wilmar group has zero tolerance for corrupt practices," reads Wilmar's April 14 statement.
According to CGSI analyst Yow in her April 21 note, while the investigation is ongoing, the case introduces uncertainty for Wilmar.
Meanwhile, possible upside risks include stronger-than-expected consumption in China supporting better profitability of its food products segment.
On the other hand, downside risks include unfavourable court ruling from litigation in Indonesia and any escalation of trade tensions between China and the US, which may result in higher operating cost.
Wilmar International shares changed hands at $3.12 as at 12.05 pm, down 0.32%.
