KUALA LUMPUR (March 22): CGS-CIMB Research is positive on Wilmar International Ltd’s 50%-owned associate Adani Wilmar Ltd's (AWL) planned listing, as this will allow Wilmar to unlock value for shareholders should it decide to sell down some of its existing stake in AWL and reward investors with special dividends.

Wilmar is also PPB Group Bhd’s 18.5%-owned associate.

CGS-CIMB’s analyst Ivy Ng said in a note today that Wilmar could benefit through higher earnings growth prospects from AWL as the group raises funding to accelerate growth and earnings.

“Our current sum of parts (SOP)-based target price (TP) conservatively values Wilmar’s AWL stake at 1 times price to book value or US$176 million only. There is potential upside of US$2.7 billion (S$0.56/share) to our SOP at the higher end of our sensitivity analysis on market valuation,” she said.

She reiterated "add" on Wilmar at S$5.27 with an unchanged SOP-based TP of S$6.15.

Ng also said she observed that listed large-cap fast moving consumer goods (FCMG) companies in India trade at 2020 price-to-earnings (P/E) range of 19 times to 86 times.

“Applying various P/E ranges to our 2021 estimated net profit for AWL suggests potential market value of US$1.4 billion to US$5.7 billion for AWL. The final potential market cap depends on the IPO structure, market valuations, and future plans,” she added.

Ng said she is not too surprised by AWL’s listing news as Wilmar earlier indicated that it was looking at the possibility of listing other parts of the group following the successful listing of Yihai Kerry Arawana.

“Based on Wilmar’s 2019 annual report, we gathered its 50% share of investments in AWL was valued at US$176 million as at Dec 31, 2019. AWL posted a net profit of US$65 million in 2019 on revenue of US$3.2 billion.

Citing sources, it was reported that AWL had hired investment banks and legal advisers to start work on its initial share sale that could see the Ahmedabad, India-based company raise as much as 5,000 crores rupees (US$690 million).

According to CGS-CIMB, AWL is a joint venture incorporated in January 1999 between Adani Group and Wilmar. It is the largest refiner and producer of consumer pack edible oils in India.