The listing also paves the way for more aggressive expansion in China in branded consumer pack business and oilseeds crushing after the lifting of restriction on foreign investment in oilseed crushing.
“Despite Wilmar’s share price surging 9.6% on Friday (spurred by the positive catalyst of potential listing in China), we still see more upside from the listing. Thus, we upgrade Wilmar to ‘buy’ from ‘hold’ with higher SOTP-based target price of $4.40,” says UOB in a Tuesday report.
UOB says the proposed listing is timely. Key factors driving the potential listing are relaxation of restrictions on foreign investment and making it easier for overseas companies to list on domestic markets,
It could also provide Wilmar with the opportunity to ride on China’s government lifting restrictions on foreign investment in the oilseed crushing market by utilising the listing proceeds to accelerate its expansion plan in the country.
The listing in could also enhance Wilmar’s brand name in the China market and ride on rising consumer demand for quality food.
“China consumers are now more conscious on the quality of food products due to the increase in disposable income and change in lifestyle. The potential listing could enhance Wilmar’s brand reputation in the China market and could benefit its future earnings,” says UOB.
The research house says its base-case scenario target price of $4.40 is pegged at higher 2018F 20x PE vs 15x previously for Oilseeds & Grain and roll forward the other segments’ valuations to 2018F earnings.
“We believe that higher ascribed PE is justifiable as its close peers are trading at average 2018F 19x PE. If listing PE is maintained at 15x, target price would be $3.90, but we think Wilmar’s China operation could be at higher valuation with a listing on the A-share market,” says UOB.
If the maximum 23x PE is assumed, the target price would be $4.60.
“Additional catalyst could come if some of the listing proceeds are utilised as special dividends,” adds UOB, “All in all, it implies a total return (share price upside and special dividend yield) of 4.5-27.4% from current share price.”
Shares of Wilmar are trading at $3.75.
