Wilmar - Listing on track

The listing of Wilmar’s China business is on track, with the company targeting the end of 2009. The proceeds would mostly be used for expansion purposes, ie, investing in new processing and distribution facilities. We think new segments such as rice and wheat can start contributing meaningfully in the next few years, driving the long-term earnings profile for the company.

We believe growth in China portion of the business will be muted compared to the rest of Wilmar’s business in the near term due to regulatory constraints (we expect the market share to remain stagnant of consumer pack and crushing businesses). However we believe the medium- to long-term outlook is strong as new facilities and new businesses will come onstream.

Margins in both crushing and refining are a function of volatility; however, Wilmar could take advantage of its market leadership and scale up to better time purchases and sales to make better spreads than its peers.

Wilmar took a price cut for its consumer products in July to pass on lower raw material costs. Thus, margins in 3Q consumer pack business can be lower q-q but still be substantially higher y-y, in our view.

We maintain our price target of S$7/share (with an implied China value at ~US$14.5bn at 19x FY10F earnings of ~US$760mn for China business).

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