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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Kuok Group subscribes to Wilmar China

Several members of the Kuok Group (KG) has subscribed for 1.61% of the enlarged capital base of Wilmar China (the proposed IPO entity in HK) for HK$1.933bn.

This sets the valuation ball rolling. This implies a valuation of US$15.5bn for Wilmar China. KG will, within three days of being notified, top up the difference with the IPO price should the IPO valuation be higher than its subscription price.

Our assumptions are close! Assuming that Wilmar China contributes to half of Wilmar International’s earnings, this would lead to a valuation for Wilmar International that is about 6% higher than our valuation target. We had assumed a 25x earnings multiple for Wilmar China and 15x for the rest of its business, leading to a 20x blended multiple for Wilmar International and thus a target price of S$6.50 for the stock. Wilmar International plans to add ‘domestic ownership’ to its Chinese unit through the IPO – this should help the company outpace foreign competitors constrained by rules introduced last year that limits capacity expansion.

Sustainability of earning base or rapid growth? The key for us as more details of its IPO come through is an evaluation of Wilmar International’s earnings growth profile. The stock’s rerating since May (when news of its proposed IPO was released) implies that the IPO event will quickly transform Wilmar International into a fast-growth firm.

12-month price target: S$6.50 based on a PER methodology. We believe Wilmar has rerated since 4Q08 because the company has proven that not only is it capable of circumventing some of the harshest conditions in credit and commodity markets, but it is able to do so while maintaining strong profitability levels.

We downgraded the stock to Neutral on valuation grounds in our 20 August note, Pricing in the IPO option. Our target price of S$6.50 for Wilmar International implies 20x FY09E earnings.

Wilmar International - Selling Wilmar China to Kuok Group at est. 20x FY10 PE

Wilmar International (WIL) has completed the restructuring to transfer all its China operation into Wilmar China Limited. The total number of issued and paid-up shares of Wilmar China Limited is 35,034m of HK$1.00 each, all of which are held by WCL Holdings Limited (100% owned by Wilmar International).

Yesterday WIL announced an issuance of 1.61% of the enlarged issued share capital of Wilmar China for a total consideration of HK$1,933.4m (or HK$3.43/share) to Kuok Group.

Based on the two announcements and our earnings estimate for its China operation (FY10 EPS: 2.23 US cents or HK$0.173), the new shares sold to Kuok Group translated into a FY10 PE of 20x.

If the listing is at FY10 PE of 19.8x or a P/BV of 3.9x (HK$0.91), based on our sum-of-the-parts valuation, WIL's fair value would be at S$8.05 or a potential upside of 25%.

Wilmar International - Share price will continue to do well

Despite its ytd strong performance, Wilmar will continue to outperform peers, driven by its strong financial performance and listing on HKEX in 4Q09 or 1Q10. Maintain BUY with a target price of S$7.50 based of SOTP valuation.

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.

Wilmar - Earnings upgrade due to better sales volume

CPO price outlook ? stable 2H09 due to the demand dynamic still holding, disappointment production for Malaysia in 2H09 would be the key support to CPO price. Although we concur the view of the production from Malaysia could come lower than 2008, the current price is running ahead of this expectation given the uncertain demand in 4Q09.

Delivering better than sector ASP. Due to its forward selling back in 2008, Wilmar delivered better than sector ASP. This likely to be the case for 2H09.

HKEX listing ? no further info. But base on the listing timeframe, the management team is likely to be call for meeting with HKEX within two months after the submission of application (31 Jul 09). Given its strong branding and good track record, we foresee the application will be a smooth process. Thus, we are expecting the listing of Wilmar's China Operation likely to be in Dec 09 or Jan 10.

We reiterate our BUY on Wilmar International. With the potential HKEX listing, we derived our target price based on sum-of-the-parts (SOTP) valuation. Wilmar's target price will be at S$7.50 based on 17x 2010 PE to its China's operation and retain 15x 2010 PE for its palm oil business. Potential upsides to our price target if the listing PE is higher than our expectation of 17x.

Wilmar - Value potential from a Hong Kong listing

China’s imports of vegetable oils exhibited a strong recovery in Q2 as soy and palm oil volumes grew over 40% and 55%, respectively, in May YoY. We expect this to be reflected in Wilmar’s Q2 results. We draw a parallel with Taiwan (which has a similar dining pattern), and conclude there is significant potential for China to increase its per capita consumption of vegetable oils in the future.

Despite its significant China operations and the dual listing in Hong Kong, we believe the market will continue to perceive Wilmar as a foreign company in China. As such, we do not see any immediate advantages from the local listing in relation to China's strict anti-monopoly laws on foreign food processors.

There is, however, a two-fold value potential from a dual listing. Firstly, it gives investors access to invest purely in Wilmar’s China operations, which we think would trade at a higher multiple than the Singapore-listed entity. Secondly, if reinvested in the company, capital raised (US$2.3-2.8bn by our estimates) could enable Wilmar to grow earnings above consensus estimates in the medium term.

We upgrade our rating for Wilmar from Neutral to Buy and raise our price target from S$4.42 to S$7.00. We derive our price target using DCF-based methodology and explicitly forecast long-term valuation drivers using UBS’s VCAM tool, while incorporating a WACC of 8.32%. We raise our 2010/11E EPS from US$0.21/0.24 to US$0.26/0.30 as we assume a long-term gross margin of 9%, up from 6% previously.

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.

Wilmar - ROEs are higher than they appear; retain Buy

On a reported basis, Wilmar’s ROEs are at the low end of the sector and appear to be on a declining trend from when the stock was listed in 2006. However, we believe the company’s ROE is understated due to non-cash intangibles from its merger in 2007, and is not representative of Wilmar’s cash returns or the returns on incremental investments.

We estimate underlying 2009E-2010E ROE at 23% (vs. reported ROE of 15%-16%), and our analysis indicates that incremental investments in Wilmar’s core merchandising and refinery, consumer products and plantations divisions could generate returns as high as 27%-86%. The market has seemingly been concerned that Wilmar’s downstream margins have been boosted by unsustainable directional trading. We disagree, as we believe there has been a significant change in the competitive structure of Wilmar’s key downstream businesses, while our analysis of similar agri-processing businesses worldwide indicates margins are not only sustainable but may have upside risk over the long term.

On an adjusted basis, Wilmar’s 2010E underlying ROE and CROCI move up to the top quartile of comparables in the Singapore market and plantations sector, while “reported” figures put Wilmar in the middle to last quartile. This could have positive implications for the company as investors tend to reward stocks in the top quartiles with premium valuations. Our new 12- month target price of S$6.50 (up from S$4.70) is based on 15X CY10E P/E, comparable to its historical 6X-19X trading range (since listing) and at a 15% premium to the Singapore market average. Our DCF-based SOTP is S$7.40/share. We reiterate our Buy rating and add it to our Conviction List.

Key risks are sharp decline in CPO or oil price; adverse government policy in China.

Wilmar - Strong start to the year

Wilmar’s results from the past nine months indicates that it has been able to not only circumvent some of the harshest conditions in credit and commodity markets but it has also continued to maintain strong profitability levels. Moves to add “domestic-ownership” to its Chinese units could allow it to outgrow other large foreign competitors there which are increasingly becoming constrained by new rules. We are raising the rating on the stock back to Outperform (Neutral previously) with a new target price of S$5.00.

Sources of outperformance in 1Q09 was in margins at all its key divisions. At oilseeds (US$55/ton), palm merchandising (US$47/ton, highest post RTO) and in consumers oilpacks (with a rather pleasing US$106/ton, the first time it has gone above US$100/ton post its RTO). There was some shortfall in volumes. Consumer oilpacks and its palm merchandising division saw volumes decline 16% and 15% YoY, respectively, as opposed to our expectation for growth of 10% and 5%, respectively. Oilseeds merchandising volumes continue to power ahead, with volume growth of 25% YoY.

Balance sheet benign. Net gearing was 25%, which leaves it plenty of room to manage its business even in a firmer agricultural price environment. Its cash conversion cycle reverted back to its more normal 60 days (from 45 days at end-2008), which to us implies that heightened risk levels seen across 2H08 have begun to normalise.

Drop-off in fertilisers. Another key takeaway lies in the point that its fertiliser unit ('others') saw a loss (of US$14m) vs a profit in 1Q08. Write-offs in fertilisers as well as poorer YoY demand may show up as lower yields amongst agriculture producers in the next 6−12 months.

We have raised our earnings forecast for 2009 by 31%. Our target price of S$5.00 implies PER of 15x (versus S$3.00 on 12x earnings previously).

12-month price target: S$5.00 based on a PER methodology. Catalyst: Volume growth in excess of 5% and 9% respectively for its palm, oilseeds merchandising units.

Wilmar’s unique integrated supply chain model allows it to outperform peers which typically have smaller footprints or only operate in limited segments. We believe Wilmar is rerating as we observe that it is able to have a fairly resilient earnings stream even though it is exposed to fairly volatile commodity/palm oil/oilseeds prices.

Wilmar International: Ever resilient

1Q09 earnings ahead of expectations. Wilmar reported net profit of US$409.9m in 1Q09 (+9.5% q-o-q, +19.2% y-o-y), mainly on the back of strong contribution from the group’s palm and lauric M&P business. Revenues were, nevertheless, lower by 14.9% q-o-q and 30.6% y-o-y to US$4,958.1m, on lower prices and seasonally lower volumes.

Listing of China subsidiaries explored. The management announced their intention to list the group’s China subsidiaries separately in either Hong Kong or Shanghai; although timing wise, a Hong Kong listing may be looked at earlier. We are quite positive on this prospect, as in addition to unlocking value, we believe it would increase the group’s visibility and strengthen its brand equity in China.

Forecasts raised on CPO prices and M&P margin. We upgrade our FY09F and FY10F CPO prices to RM2,300 and RM2,300 from RM1,900 and RM2,000, respectively, to reflect tight vegetable oil supply this year. While we still expect margins to taper off over the following quarters, we have also raised palm & lauric M&P pretax margin to 4.5% from 3.8% on the back of strong results.

Buy rating reiterated. Our changes resulted in revised TP of S$5.15/share (based on DCF, WACC 10.5%, terminal growth rate 3%). While the recent price surge has reflected the good results, we continue to like the group’s ability to deliver; and given 16% upside on our revised TP, we reiterate our Buy call.

Wilmar International - China Operation to List in HK within six month

To list China Operation in HK. For 2008, China operation generated about US$600m net profit. Based on China's consumer listed PE of 15x, this will translate into a potential market cap of US$ 9.0b. Management intent to float 20-30% to the market, which will bring in cash proceed of US$1.8b to US$2.7b.

Listing rationale:
o Unlock shareholder value
o Strategic to have Chinese investors participate in growth

Targeting to be listed in HK within 6 months. Eventually will be doing a dualisting or move to Shanghai for listing within the next 2 to 3 years.

CPO price outlook steady with small correction in 2H due to higher production. No big correction is expected due to
o Better macro outlook for India and China ? the two key market for palm oil
o Stable crude oil price ? provide a proxy to edible oil
o Tightness in oilseed and edible oil supply ? Indonesian palm oil supply could be lower due to bad weather in 1Q in selective areas. These areas down by 40% yoy in 1Q09.

2009 still betting on volume growth. Strong refinery's margin and consumer pack's margin unlikely to sustain due to the higher raw material cost. But still well supported by volume growth of 10-15% for 2009.

Reviewing price target with an upside of 15-20% from our current pricetarget of S$3.80 on (1) higher CPO price assumption for 2009 and (2) betterrefinery and crushing margins. Potential special dividend from HK IPOproceed will be another share price catalyst.

Wilmar - Buy: The Preferred Downstream Player

CPO price assumption — We do not expect a sustainable rally in CPO price in 2009 after the recent surge, which has been driven by the decline in Malaysian production and significant reduction in stock levels. We are revising our FY09 CPO price assumption for Wilmar based on our revised sector assumption for 2009 of US$610/t from US$550/t previously.

Raising FY09E earnings, marginal change in target price — Factoring in our upward revision in average CPO price for FY09E, we revise our FY09E earnings forecast up by 3%. Correspondingly, our target price has been tweaked marginally to S$4.33 from S$4.32 previously.

Prefer downstream player — After the recent rally of all plantation names across the region, we recommend investors switch to downstream player Wilmar for its better quality earnings profile. We believe that CPO prices are unlikely to stage big movements from current levels, curbing earnings growth prospects for upstream players.

Reiterate Buy — CY09 P/E of 13.2x is at a 19-34% discount to the Malaysian planters. We believe this valuation gap should narrow given Wilmar’s scale, strong management, emerging market exposure, and relative earnings resilience. It also has a strong balance sheet with net gearing of 0.24x as at FY08. At our target price of S$4.33, Wilmar would trade on a FY09E P/E of 16.8x and FY10E P/E of 15.7x.

Wilmar - Initiating at Buy: Compelling Agri-Giant in Volatile Times

Prefer this downstream player — After the recent rally of all plantation names across the region, we recommend investors switch to downstream player Wilmar International for a better quality earnings profile. CPO prices are unlikely to stage big movements from current levels, curbing earnings growth prospects for upstream players.

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.

Wilmar International - Slower volume growth

We now expect just 10% in volume growth for its oilpacks division, halving our previous expectation of 20%. However, there is only a 3% reduction in our earnings expectation for FY09, given year-to-date firmness in palm prices which has helped its plantations division. Post the strong performance in the stock, we lower our rating to Neutral, on an unchanged price target of S$3.00.

Oilpacks growing but now at a slower pace. A weaker data set in edible oil imports plus a weak macro backdrop in China leads us to now expect volume growth at 10% YoY to 3.2m tons (versus 20% previously) for its oilpacks division. While we still expect better margins this year (US$50/ton vs US$25/ton on average last year), we have reduced our assumption by 10% from our previous margin expectation of US$55/ton). While its oilpacks consumer division was the smallest profit contributor (at 4% of its profit pool) of its four divisions in FY08, contribution from this division was expected to grow strongly this year, driven by better margins due to the fall in input prices and continued volume growth.

Diversity helps in balancing net earnings for FY09. Firm palm oil prices, which on average are likely to be close to US$600/ton for 1H09 will help the profitability at its palm plantation division, mitigating the negative impact from its oilpacks consumer division. We also expect continued strong performance from its key merchandising division − in both palm and oilseeds, where we expect volume growth of 5%. Palm and oilseeds merchandising divisions remain 70% of its profit pool.

Strength in balance sheet management. Working capital needs has declined sharply due to falling commodity prices, leading to a cash level of US$2.9bn (vs US$1bn end FY07) - helped by a US$1.1bn YoY decline in inventories and a US$0.3bn YoY decline in receivables at end FY08. Its cash conversion cycle had also improved sharply to 45 days (vs 61 days previously). Adjusted for liquid inventories and receivables, its adjusted net gearing would only be 10%. Wilmar also has up to US$7bn in fresh liquidity, as it has only utilised 47% of committed debt lines at end FY08. There are ample resources for M&A.

Earnings for FY09 reduced by 3%. 12-month price target: S$3.00 based on a PER methodology. Catalyst: Volume growth in excess of 5% for its key palm and oilseeds merchandising units. Wilmar is a large and profitable downstream processing company, with approximately 88% of its profit pool derived from its divisions ex plantations. Our price target of S$3.00 implies a PER of 12x.

Wilmar shareholding structures

This is not a surprise to the market as the group had announced plans to streamline shareholding structures on 3 Feb 09. This is only an interim distribution of 40% of all Wilmar shares held by the holding companies. We expect the group to announce the distribution of the remaining shares held by the holding companies over time as we gathered from an earlier announcement that the liquidation process could take up to 18 months to complete.

To recap, the holding companies of Wilmar are being liquidated because they no longer serve their purposes following the injection of related-party assets into Wilmar. We also gather that the streamlining exercise is not due to major shareholders of WIHL wanting to sell down their stakes in Wilmar. So far, there has been no indication by any of the major shareholders of their intention to reduce their stakes in the company. We expect ADM to remain a major shareholder as Wilmar offers exposure to the oilseed and edible oil business in Asia.

Overall, we are neutral on this news as concerns of a potential short-term share overhang from minority shareholders of WIHL and WHPL are offset by a higher free float for Wilmar, which could help to improve its weighting in MSCI or FSSTI.

Maintain Outperform. We continue to believe that the streamlining of the shareholding structures does not necessarily signal plans by major shareholders to pare down their stakes in Wilmar, resulting in a share overhang as feared by the market. We see this move as a necessary step since the holding companies no longer serve their purposes.

There is no change to our earnings estimates or target price of S$3.68, based on an unchanged target forward P/E of 15x. Maintain Outperform on Wilmar for its strong management, solid business model and earnings resilience relative to peers. Wilmar remains our top pick for exposure to the plantation sector in the region. Key re-rating catalysts could include potential M&As, better processing margins for its core products and a potential increase in weightings in major indices.

Wilmar International - Maximising Profit from Information and Economic of Scale

Wilmar is an integrated plantation company with a 50% market share of China 's branded cooking oil market, a quarter of global palm oil refining capacity, about 40% of the global palm oil traded market, and 20-25% of China's oilseed industry.

Stable CPO price outlook. Management opined that CPO price will stable at current level for 2009, even if the price correction to come the downside would be mitigated by the resilient demand from China. CPO price was closed at RM1,990/tonne for 3-month future contract and spot price on 26 Mar 09 was at RM2,101.50/tonne. This is in line with our house view on CPO price trading band of RM1,750-RM2,100/tonne for 2009 with an average of RM1,800/tonne.

Sales in China still good. Management indicated that the sales of the consumer packs do not show any sign of slowdown on cooking oil consumption. Wilmar has a 50% market share of China's branded cooking oil market. This would be the key factor to support CPO price. China consumed about 5.6m tonnes of palm oil in Oct-Sep 07/08 or 13.1% of global palm oil production.

Growth still with emerging markets. Management reiterates the growth for Wilmar still coming from China and India, i.e. the two largest edible oils markets in the world. The bottom line contribution to come from two key areas:

a) Volume growth supported by capacity expansion and gain in market share.

b) Margin improvement from better efficiency. The efficiency improvement come from internal control and also the improvement of China and India public infrastructure, i.e. better highways and rail connectivity.

Trading profit in the range of 5-20%. With regards to fund managers' concern on Wilmar's trading profit, management highlighted that at least 80% of Wilmar's net profit is deriving from its day to day operation. The trading profit make up by 5-20% and this is contributed by (1) timing of buying and selling, (2) extra profit deriving from maximizing shipping load from each shipment, and (3) taking an arbitrage position for locked in contracts.

The stock is now trading at FY09F and FY10F PE of 12x and 11x, respectively, below other major plantation players of 15x and 12x.

Wilmar International - limited upside to target price

Stock has outperformed, downgrade to Neutral: We downgrade Wilmar to Neutral (previously Buy) as it has limited upside potential to our 12-month target price of S$3.15/share following the recent strength in share price, but would likely turn more positive if the stock retraces below S$2.50/share. Longer-term, investors may get more comfortable with Wilmar’s downstream earnings (83% of 2009E) and strong growth prospects, but in the short term investors may still be averse to paying premium multiples.

Dominant player in high-growth agri-segments: In our view, Wilmar should be a core holding for long-term investors as it offers high-quality, high-growth exposure to the palm oil sector given market leadership in its downstream businesses and strong organic growth potential. This is driven by:

1) plantations land bank, which is 4X its current mature area;
2) largest CPO refiner in the world with a 25% global market share;
3) China food and agriculture proxy – Wilmar is the largest oilseed and grain processor (20% market share) and the leading player in the branded cooking oil segment (>50% market share).

Increasing competitive advantage: Typically lower CPO and soybean prices would exert downward pressure on Wilmar’s US$/ton processing and merchandising margins, in our view, but with the credit crisis and commodity price volatility we see significantly reduced competition and this could improve the company’s incumbent competitive advantage.

We maintain our 12-month target price of S$3.15/share, using the same 12X CY2009E P/E multiple as before. This is at the mid-point of the stock’s historical 6X-19X trading range (since listing) and at a 20% premium to the Singapore market average of 10X, which we believe is deserved given its more resilient earnings profile. Longer-term “through-the-cycle” investors should note our DCF-driven SOTP valuation of S$4.80/share.

Upside risk - Sharp rebound in CPO or crude oil prices; earnings surprise from stronger-than-expected downstream margins. Downside risk - Refining/processing margins can be volatile from quarter to quarter. Controlling shareholder Wilmar Holdings Pte Ltd (WHPL) recently announced a share distribution scheme to be completed over the next 18 months which may raise Wilmar’s free float from 13.7% to 24.1% (potentially boosting its MSCI Singapore weighting from 2.1% to 3.7%) but could cause a market overhang (please see our Feb 4, 2009 report on Wilmar titled “Higher free float could boost MSCI weighting, but ST overhang” for more details).