Friday, July 26, 2013

Wilmar International : Reading more into the deal (CIMB)

Wilmar International
Current S$3.16
Target S$3.74
Reading more into the deal

 Wilmar's deal to buy a stake in Noble Plantations has fallen through as it failed to get approvals from the relevant authorities. We are neutral on this as it does not affect our earnings forecasts and the deal is small relative to Wilmar’s shareholders funds. But it could have wider implications for the Indonesian palm oil industry if approval was not granted because of the proposal to limit plantation companies’ ownership of estates to 100k ha each. This may affect the expansion plans of large-cap planters with over 100k ha of planted estates. Wilmar has been forward-looking and has started to expand to Africa. This supports our Outperform call. We maintain our SOP-based target price.

What Happened
Noble Group’s planned sale of its 53.74% stake in the JV entity, Noble Plantations, to Wilmar has been called off as conditions have not been satisfied before a deadline. The venture holds a majority interest in PT Henrison Inti Persada, which owns around 23k ha of land in Papua. It was reported that the group failed to obtain certain merger clearances.  
What We Think
This is a surprise to us and represents the first major case in Indonesian palm oil estate M&A in recent times where a deal has been called off due to lack of regulatory approvals. This also comes at a time when there is talk of plans by the Indonesian government to limit plantation companies’ planted acreage to 100k ha. We suspect that the government may be taking the proposed change into consideration when reviewing current proposals. If our suspicion is correct, this is negative for large companies looking to expand through M&A. While the termination of this deal does not affect our earnings forecasts for Wilmar which owns 183,623ha of planted estates in Indonesia as at 31 Mar 2013, we would be negative on it if it implied a more difficult climate for expansion of estates in Indonesia.  
What You Should Do
Recognising the tougher conditions for growth in Indonesia early on, Wilmar has expanded into sugar and palm oil in Africa. This is why this news does not affect our long-term view on the stock, which remains an Outperform for its recovering earnings and low valuations.  

Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 25/07/13

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