Thursday, November 28, 2013

Wilmar: Forms China corn starch JV (OCBC)

Wilmar:
Fair value S$3.55
add: 12m dividend forecast S$0.06
versus: Current price S$3.59
Forms China corn starch JV

Wilmar International Limited (WIL) recently announced that it has formed a JV with Tereos Internacional to manufacture corn starch in China – this is its second commercial collaboration with Tereos. However, we do not see any immediate boost to earnings. Meanwhile, we note that WIL’s share price has done very well (+17%) since our upgrade to Buy on 6 Sep; but as WIL looks fairly priced around current levels versus unchanged S$3.55 fair value (based on 12.5x FY14F EPS), we opt to maintain our HOLD rating. We also advocate taking profit closer to S$3.70.


Forms China corn starch JV
Wilmar International Limited (WIL) recently announced that it has formed a JV with Tereos Internacional called Liaoning Yihai Kerry Tereos Starch Technology Co Ltd. The move will see Tereos acquiring 49% of the JV company from WIL’s subsidiary for RMB208m; the JV will engage in the operation of a corn starch facility in Tieling (Liaoning Province) with a current annual processing capacity of 700k tons of corn. According to WIL, the acquisition marks the second important step in the development of the major partnership with Tereos in the rapidly growing market for starch-based products in China. However, we do not see any immediate impact on earnings.

Shares already ran up sharply
Meanwhile, the recent recovery in CPO (crude palm oil) prices has lifted plantation stocks (WIL rose as much as 17% after our upgrade to Buy on 6 Sep), but we believe that some of these optimism may be overdone. For one, WIL is still a net buyer of vegetable oil (including CPO) and a continued rise of input prices could result in a margin squeeze for its consumer packs. Note that because cooking oil is an essential food item, it may also be subject to price caps should inflation in China rises faster than the government’s guidance. Secondly, the enthusiasm over the Indonesian government’s doubling of the bio-diesel mandate to 10% blend may be a bit premature. A recent Platts report suggested that the Pertamina tender may not offer as fat a profit margin as what the market is expecting.

Maintain HOLD with S$3.55 fair value
Currently, WIL is trading close to our unchanged fair value of S$3.55 (based on 12.5x FY14F EPS), suggesting that the stock looks fairly priced around here. From a historical perspective, we see that WIL’s valuation is already close to its 2-year average. Hence, we opt to maintain our HOLD rating. We also advocate taking profit closer to S$3.70.


Source/Extract/Excerpts/来源/转贴/摘录: OCBC-Research,
Publish date: 26/11/13

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