Wilmar International: Raising growth

Raising volume growth and M&P margins. We revised Wilmar's earnings model to reflect the group's capacity expansion that will maintain its leading market position beyond 2010. We also raised our merchandising and processing (M&P) margin assumptions, as recent spot margins have shown sharp turnaround (see page 8). This results in upgrades to FY09F-10F EPS by 9.2-12.5%.

New TP yields 18.4% upside - Buy. Our DCF valuation now yields a TP of S$6.10 (WACC 9.7% and terminal growth 3%). This includes associates' book value ? previously unaccounted for ? and conversion of the group's remaining US$575m CB (154.4m new shares at S$5.38). At our TP, Wilmar would trade at 16.2x FY10F PE.

Plenty of growth opportunities. Wilmar's presence in the world's fastest growing region presents plenty of growth opportunities for the group. Demand from China, India, and Indonesia should continue to drive growth for Wilmar's products.

Margins are more sustainable than previously thought. With the group's scale, integration and significant market shares, Wilmar is able to push its costs down and pass on these cost savings. Having recognized brands also underpins earnings power; while upstream expansion would continue to augment long-term margins.

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