This article first appeared in The Edge Malaysia Weekly on March 26, 2018 - April 1, 2018

IF Wilmar China is listed in 2019, it would have been over a decade since the intention to do so was made known. In September 2009, Wilmar International Ltd delayed what could have been a US$3 billion to US$4 billion listing of 20% to 30% of its China business in Hong Kong, valuing the unit at about US$14 billion.

Now, insiders say a listing is seriously being “evaluated” to take place next year, “possibly in Shanghai”, although Wilmar chairman and CEO Kuok Khoon Hong had said on Feb 22 that “there is no certainty or assurance” the listing would happen just yet.

Apart from “unlocking value” to reward employees and investors, it is understood that the planned listing will also allow greater Chinese participation in Wilmar, and, ideally, that it will be regarded as a domestic company.

What insiders left unsaid is something of an open secret that can only be broached by someone like Sugar King Robert Kuok. “Wilmar doesn’t do anything except be efficient, but resentment can be the price of efficiency. Too much growth can give rise to environmental issues. It can give rise to questions about food security, when a government comes to believe that too much of a nation’s food is imported or that too much of the food industry is controlled by ‘foreigners’,” he says in his recently published memoirs. At 94, he is old enough and has done enough public service to be able to express frustration without being deemed unpatriotic.

Co-founded by Khoon Hong, who is Robert’s nephew, and Martua Sitorus in 1991, Wilmar was already one of the world’s largest edible oil refiners with customers in more than 30 countries including Malaysia, Singapore, Indonesia, India and China) when it was floated on the Singapore Exchange via the reverse takeover of Ezyhealth Asia Pacific Ltd in July 2006.

About a year later, Wilmar acquired what were essentially Robert Kuok-controlled oil palm estates and operations in Malaysia and Indonesia, edible oil refineries and grain processing facilities in China, Bangladesh, Indonesia, Vietnam, the Netherlands and Germany. That gave the Kuok Group “about one third of Wilmar” in June 2007, according to Robert Kuok: A Memoir (with Andrew Tanzer).

“Our shareholding in Wilmar is one of the largest assets of the Kuok Group — an obvious sign of our trust in Khoon Hong’s abilities and honesty as a businessman,” he says in the book. In it, Robert not only relates the genesis of the Kuok Group but also detailed some of the national service he did for Malaysia, Singapore and China.

Bursa Malaysia-listed PPB Group Bhd owns 18.55% of Wilmar, which accounted for 78% of its 2017 profit. PPB is 50.81% owned by Kuok Brothers Sdn Bhd and 11.13% by the Employees Provident Fund (up from 8.11% in mid-March 2017). Wilmar is a component of Singapore’s Straits Times Index while PPB is an FBM KLCI constituent.

Robert also weighs in on Wilmar and Khoon Hong, whom he describes as “the most fantastic businessman you can team up with” and “a businessman at least as able as myself”.

Robert relates how Khoon Hong is a hands-on manager who works “16 or more hours a day, every day of the year”.

“He goes down to the field, goes to his factories, talks to his managers. He sees that farmers are as hard-working as ever … he will supply better seeds to rice farmers and install the best rice-milling machinery. He has corrected the old practice of mixing the best quality rice with the lowest quality rice at time of harvest … Khoon Hong showed the farmers that by using the best machinery, which he supplied, better quality grains could be produced, and that valuable rice bran oil could be extracted from rice bran.

“Wilmar’s policy is to improve food production practices and yields, and to share additional profits with the farmers and other processors. That is the reason why Wilmar has been so successful in the places that it does business. That, and taking care of its vendors and customers, the sellers and the buyers. Such things plus vision, hard work and efficiency are what promote a company’s growth. You need hands-on direct management. For a business to be healthy, it needs to keep growing. Of course too much growth, too quickly, can be unhealthy as well. It can give rise to envy or anger among people who are unable to compete,” the memoir reads.

Robert also says it was Khoon Hong who told him about the enzyme process to extract oil from soybeans. The latter also planned and started in the mid-1980s, the first edible-oil refinery, import base, storage base and packing base in Shenzhen, China.

He says Khoon Hong was “the driving force” of what later became Kuok Oils & Grains, which merged with Wilmar alongside PPB Oil Palms in 2007.

Time will tell if the memoir will win brownie points for Wilmar and its chief, who had previously told The Edge that “hard work, integrity and luck are the keys to [Wilmar’s] success”. “We will continue to work hard, work honestly but will fortune continue to smile at us? We don’t know,” Khoon Hong said in 2011.

Headwinds that comes with success

To quote Robert’s memoir, Wilmar “now has over 500 manufacturing plants, an extensive distribution network covering over 50 countries, owns a fleet of vessels [and] has a multinational workforce of about 90,000 people”.

“Wilmar is Asia’s leading agribusiness group. Its business activities include oil palm cultivation, oilseeds crushing, edible oils refining, speciality fats, oleochemicals and biodiesel manufacturing, flour and rice milling and sugar milling and refining. It is a globally leading raw sugar producer and refiner, and owns one of the top consumer brands for sugar and sweeteners in Australia. It is also one of the world’s largest producers and merchandisers of palm and lauric (coconut) oils. Its edible oils operations stretch from Europe (where it is the largest refiner in Ukraine) and East Africa (where it is the leading supplier) to India, Southeast Asia and China (where it owns the market-leading brand). It is one of the largest oil palm plantation owners in Malaysia and Indonesia, and the world’s largest palm biodiesel manufacturer.”

Wilmar downplays the size of its market share in China, Indonesia and even Malaysia — especially when it comes to businesses like basic foodstuffs that are vital to the people.

Apart from heightening competition in a tougher operating environment, Wilmar’s woes can perhaps be summed up by the Chinese idiom shù dà zho fng, which translates as a tall tree catches wind, meaning the group’s sheer size makes it a target.

Indonesian current affairs magazine Tempo, in its March 25 issue, not only featured Maligi villagers protesting at an estate in West Sumatra on March 9 (over purported under-compensation of cultivated land which a Wilmar official denied in the same report) but also brought up old (unproven) allegations of tax fraud “fake invoices” that hit the shares of Wilmar and PPB in 2010 and saw Wilmar returning its tax refund.

That is not the first and probably won’t be the last headwind the group faces as it continues to seek sustainable growth.

Share prices of Wilmar and PPB moving in opposite directions

Interestingly, the share prices of Wilmar and PPB have been moving in opposite directions even though Wilmar has been contributing easily 70% of PPB’s profits since the latter hived off its Malaysian sugar business in 2009, after owning it for 45 years.

At its peak of S$6.203 on Jan 12, 2010, Wilmar commanded a market capitalisation of S$45.83 billion. At its S$3.21 close last Wednesday (March 21), its market cap had more than halved to S$20.31 billion.

PPB, which fetched RM13.985 when Wilmar’s share price was at its peak in 2010, closed last Wednesday at an all-time high of RM18.78. Its RM22.26 billion market cap reflects a RM2.23 billion gain over the same period.

The four analysts tracking PPB are split between “buy” and “hold”, with price targets ranging from DBS Vickers’ RM17.15 a share to Kenanga Investment Research’s RM19.85 , according to Bloomberg data at the time of writing.

Seven of the 15 analysts tracking Wilmar have a “buy” compared with six “hold” and two “sell”, with a consensus target price of S$3.61. The most bullish price target is UOB Kay Hian Research and CIMB Research’s S$4.10 while the most bearish is Morgan Stanley with S$2.89.

Whether or not Wilmar should be worth more, stock exchange filings show that Khoon Hong has been buying shares from the market. Between Feb 23 (the day after Wilmar announced its 2017 results) and March 19, he bought 4.86 million shares for S$15.18 million, at an average cost of S$3.12 each, to raise his holding to 12.27%.

Wilmar did not provide a geographical split on just how significant its China business is to group earnings in its 2017 earnings. The China unit contributed about 40% of the group’s profit and 50% of revenue in 2008. If the group succeeds in winning greater goodwill from China from a successful listing of Wilmar China, all stakeholders stand to benefit.

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