CPO price to stay resilient in 2H09 as demand dynamics still hold. Production for Malaysia in 2H09 would be lower than in 2008. Although we had expected lower production from Malaysia, current CPO price is ahead of this expectation and we still think the low demand in 4Q09 would push Malaysia’s palm oil inventory back to 1.6m-1.7m tonnes.
Good foresight to deliver better-than-sector CPO ASP. Due to its forward selling back in 2008, Wilmar delivered better-than-sector average selling prices (ASP). This likely to be the case for 2H09.
HKEX listing likely to be within next six months. During the briefing, noupdate was given on the application to Hong Kong Stock Exchange (HKEX). Base on the listing timeline, we expect the listing to take place in Dec 09-Jan 10. Based on HKEX’s regulation, for an initial public offering (IPO) of above HK$10b, the free float can be reduce to 15% (vs 25%). In our earlier note, we highlighted that the free float is likely to be at 20% for a potential listing market capitalisation of US$13.3b.
Catalyst to share price: a) earnings upgrade due to better sales volume as the economic situation improves, b) margin expansion - Wilmar raised cooking oil selling price again in Jul 09, and c) strongest catalyst will be its HKEX listing. In our sum-of-the-parts (SOTP) target price, we assume a listing PE of 17x 2010 earnings. A higher listing PE would drive the valuation higher.
Reiterate BUY. With the potential HKEX listing, we derive our target price based on SOTP valuation. Wilmar’s target price will be S$7.50 based on 17x 2010 PE to its China’s operation and retain 15x 2010 PE for its palm oil business. There is potential upside to our target price if the listing PE is higher than our expectation of 17x.
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