A relatively more resilient earnings profile — Given its size, integrated structure and global market intelligence, the company can react to industry trends faster than its peers. In the last results reporting, Wilmar performed better than other Malaysian plantations companies with downstream businesses. To recap, IOI, KLK and Sime Darby reported losses for their downstream segment, which account for less than 20% of their earnings.
FY10-11E EPS to grow 15-16% — We forecast a 30% fall in FY09E earnings on falling PBT margins due to lower selling prices and processing margins. Earnings should rebound by 15-16% in FY10-FY11E driven mainly by volume growth.
Cheap versus big cap Malaysian planters — We initiate coverage of Wilmar with a Buy/Medium Risk (1M) rating. CY09 P/E of 13.6x is at a 17-32% discount to the Malaysian planters. We believe the valuation gap should narrow given its scale, strong management, emerging market exposure and relative earnings resilience. Strong balance sheet with net gearing of 0.24x. At our target price of S$4.32, Wilmar would trade at FY09E P/E of 17.2x and FY10E P/E of 15.6x.
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