Wilmar in the spotlight with China unit’s approaching IPO

This article first appeared in The Edge Financial Daily, on August 5, 2019.
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KUALA LUMPUR: Food giant Wilmar International Ltd is gaining more investors’ attention given that the listing of its China unit, Yihai Kerry Arawana Holdings (YKA), is getting closer now, said UOB Kay Hian.

The next catalyst could come from the trading of YKA shares, which is expected to commence in the fourth quarter of the year, the investment bank said in a recent research note.

“With [YKA’s] strong market positioning and branding in China, we do expect a strong share price performance upon listing. This could lift trading sentiment on Wilmar as well,” it added.

Wilmar’s share price has actually been on the uptrend for some time now and the counter is one of the top gainers on the Singapore Exchange this year.

Year to date, it has gained 30.07%, closing at S$3.98 (RM12.02) last Friday compared with S$3.06 on Dec 31, 2018. This brings Wilmar’s market capitalisation to S$25.21 billion.

UOB Kay Hian maintains its “buy” call on Wilmar with a higher target price (TP) of S$4.50, from S$3.90 previously.

According to Bloomberg, there are 18 analysts tracking the counter — 11 with a “buy” call, five with a “hold” call and two with a “sell” call. Their TP for Wilmar ranges from S$2.29 to S$4.80.

Apart from the possible boost to Wilmar’s share price, UOB Kay Hian noted that the YKA’s upcoming initial public offer (IPO) should free up Wilmar’ capital expenditure funding to allow the group to embark on asset acquisition that is complementary to its existing operations.

The investment bank also expects Wilmar to potentially declare a better dividend from the IPO. “Assuming it pays 30% of net proceeds, this could translate into a special dividend of 8.5 Singapore cents to 10 Singapore cents per share, or an additional 2% to 2.5% dividend yield,” it said.

UOB Kay Hian retains its net profit forecasts of US$1.24 billion, US$1.43 billion and US$1.51 billion for Wilmar for 2019, 2020 and 2021 respectively.

Last month, Wilmar announced that the China Securities Regulatory Commission had accepted YKA’s application for a listing on the Shenzhen Stock Exchange. The listing date has yet to be fixed.

According to the preliminary prospectus for the IPO, YKA is aiming to raise as much as 13.87 billion yuan (RM8.26 billion) by selling a stake of about 10% of its total pro forma share capital. It will be issuing 542.16 million new shares for the IPO.

Post-listing, Wilmar would remain as the largest shareholder of YKA with an 89.99% stake, from 99.99% currently.

YKA is one of the largest agribusiness and food processing company in China. It is mainly involved in edible oil refining, oilseed crushing, and the processing and sales of specialty fat, oleochemicals, kitchen food and feed ingredients.

YKA, with 62 production bases in China, is planning to use the IPO proceeds to finance 19 new projects in China, including soybean crushing units, flour mills, and animal feed plants.

According to the draft prospectus, YKA’s revenue had been growing steadily from 133.35 billion yuan in 2016 to 150.77 billion yuan in 2017 and 167.07 billion yuan in 2018.

Its net profit also improved significantly from 853.75 million yuan in 2016, to 5.28 billion in 2017 and 5.52 billion yuan in 2018.

YKA contributes significantly to Wilmar’s earnings. For 2018, it contributed 59% (or US$772 million) to Wilmar’s total net profit of US$1.31 billion.

Another stock that could indirectly benefit from YKA’s listing is Bursa Malaysia-listed PPB Group Bhd. This is as PPB Group currently owns some 18.5% of Wilmar. Wilmar contributed 78% or RM837 million of PPB’s profit in 2018.

Last Friday, PPB’s share price closed at RM18.64, with a market capitalisation of RM26.52 billion. The stock has gained 7.76% year-to-date.