Wilmar International Ltd
Valuation reports will not be censored and will be catalogued for reference in its original submitted form. All research reports,
appendices and/or presentation slides are produced strictly for academic purposes. Any such document is not to be construed as
an offer or a solicitation of an offer to buy or sell any securities nor is it mean to provide investment advice. The NUS, the NUS
Business School, the participating students, faculty members, and staff accept no liability whatsoever for any direct or
consequential loss arising from any use of this document or any communication given in relation to this document.
Lai Wai Kit (U064737W)
Lee Kelvin (U064755N)
Nattaya Kris Suebjaklap (U064241H)
Li Zhuowei (U064260M)
Te Lay Hoon Goi Seng Hui Sam Teo Kee Bck
Bloomberg Code SUPER SP Reuters Code SCOF.SI Market Cap(m) 208.53 Issued Share Capital(S$m) 541.63 52-week High S$1.20 52-week Low S$0.30 Listing Bourse SGX Mainboard Average Volume (000) 103.9 Beta 0.86
September 30, 2009
HOLD Equity | Singapore | Plantations
Research Analysts: Lai Wai Kit Lee Kelvin Nattaya Kris Suebjaklap Li Zhuowei +65 6321 1234 email@example.com
Wilmar International is well-positioned due to its investment in core businesses
and new markets and strong financial position.
Key Opportunities Looking Forward
Improving global economy
Positive growth prospects in emerging markets
Wilmars emphasis on growth in China, India and Indonesia
Resilient global demand for food and agricultural commodities
We rate Wilmar International Ltd a HOLD with a target price of S$6.65.
The Group enjoys leadership position in palm oil industry. While there are
various opportunities, Wilmar is facing a variety of risks. Wilmar China IPO
outperformance potential may be limited and timing is largely uncertain. Other
risks include commodities price risk, credit risk, foreign exchange risk and
interest rate risk. We see Wilmar as a good pick with a strong business model.
However from our valuation, we believe that with all the uncertainties that the
company faces, Wilmar is currently priced close to its fair value.
Thus, we initiate a HOLD call for Wilmar International Ltd.
Wilmar International Ltd We Invest, You Harvest
Page 1 of 15
Target Price S$6.65 Current Price S$6.32 Target Horizon 12 months STI Index 2,672.57
Bloomberg Code WIL SP Reuters Code WLMIF.PK Market Cap(m) 40357.51 52-week High S$6.99 52-week Low S$1.80 Listing Bourse SGX Mainboard Average Volume (000) 10683.9 Beta 0.875
MAJOR SHAREHOLDERS Wilmar Holdings PPB Group Kerry Group Global Cocoa Holdings
STRONG MARKET POSITION Largest global processor and merchandisers of palm and lauric oils, and largest global palm biodiesel manufacturer
MARKETED BRANDS Arawana, Koufu, Orchid, Gold Ingots, Golden Carp, Huaqi, Baihehua, Xiangmanyuan
PRODUCTS Oil palm plantations Palm and Lauric oil products Soya Bean products Edible oil
QUICK FACTS Corporate Profile Wilmar International Limited, founded in 1991 as a palm oil trading company, is
today Asias leading agribusiness group. It is amongst the largest listed
companies by market capitalisation on the Singapore Exchange.
Headquartered in Singapore, its operations are located in more than 20
countries across four continents, with a primary focus on Indonesia, Malaysia,
China, India and Europe. Backed by a staff force of about 70,000 people, over
250 processing plants and an extensive distribution network, the products of
Wilmar International Limited are delivered to more than 50 countries globally.
Wilmar International Limited Distribution Network
Source: Company Information
Wilmar International Limited is engaged in the businesses of oil palm cultivation,
oilseeds crushing, edible oils refining, consumer pack edible oils processing and
merchandising, specialty fats, oleochemicals, biodiesel, fertilisers and soy
protein manufacturing, rice and flour milling, and grains merchandising.
The business strategy involves building an integrated business model which
captures the entire value chain of the agricultural commodity processing
business, from origination, processing and transportation to the branding, Page 2 of 15
merchandising and distribution of a wide range of agricultural products. Wilmar
International Limiteds business model enjoys lower cost due to economies of scale, integration, logistical and distribution advantages, and superior market
Wilmar International Limited has a strong foothold in China, India and South
East Asia, some of the fastest growing consumer markets in the world making
the stock an excellent proxy to developing markets consumer sector boom.
Cumulatively, these three markets that accounts for 46% of world of world
population contributed approximately 79% of group revenue in FY08.
Wilmars FY08 revenue breakdown by regions
Source: Company Filings
Page 3 of 15
Economy Outlook Asia Pacific Countries GDP Growth. In view of the tumbling global equity
market and rising unemployment, most of the countries in the Asia Pacific region
are expected to contract between 2% to 3% in 2009. As Wilmar International
Limiteds core revenue stream is from the Asia Pacific region, this has an
immense impact on the growth of the company. Among the Asian countries, the
growth prospects in China remain the strongest with expected GDP growth of
7.5%. World Bank expects developing economies (where Wilmar International Limited heavily invests in, particularly countries like India) to recover in 2010 and an average GDP growth of 6%.
However, demand will not just be driven by just straightforward GDP growth. Demand for edible oils is also set to grow through urbanisation, and demand for
better quality agricultural products. Currently, both China and India have low per
capita consumption per capita consumption per annum of vegetable oils,
approximately 16kg for China and 10kg for India, as compared to developed
nations such as the US, at 37kg, or a closer geographical comparison of Hong
Kong, at 32kg. A higher per capita consumption will be driven by a trend towards
more processed and packaged foods with rising affluence.
Inflation Rates for Asia Pacific Countries. With the ongoing financial crisis
eroding demand and economic growth, inflation rates have dropped. Although
many countries such as China and Singapore have introduced economic
stimulus packages to boost demand, we expect to witness a drop in inflation
rates as consumption continues to remain weak till end of 2010. Thus,
production costs of Wilmar International Limited are expected to decrease in
2009 and 2010, but it is expected to increase when economies recover in late
Page 4 of 15
Fluctuations in Exchange Rates. Wilmar International Limited has
transactional currency exposures arising from sales/purchases that are
denominated primarily Singapore Dollar (SGD), Malaysian Ringgit (Ringgit),
Thai Baht (Baht) and Renminbi (RMB). Operating in several countries and
facing foreign currency risk, Wilmar International Limited manages its
currency risk by matching sales and purchases in the same currency, and
through financial instruments, such as forward currency contracts.
Industry Analysis Wilmars core businesses can be classified into: 1) upstream plantations, 2) merchandising & processing (M&P), 3) consumer packs, and 4) fertilisers & shipping. M&P and Plantations divisions accounted for 93% of Wilmars
operating profit in FY08.
Wilmar International Limited owns a total of 573k ha plantations land bank, out
of which, approximately 223k ha are already planted. In terms of total land bank,
Wilmar is the fourth largest behind Sime Darby, Golden Agri and Astra Agro.
Bulk of the land bank is located in Indonesia. In addition, the group also
manages about 33,867ha under the Plasma Programme in Indonesia. To serve
the Russian and East Europe market, Wilmar is also growing palm oil in the
African continent. In Uganda, the group owns 4k ha planted area and in West
Africa, 36k ha and manages another 120k ha under smallholders scheme.
Merchandising & Processing
(i) Palm & Laurics
Wilmar International Limited is the world largest palm oil refiner. For
strategic reasons, Wilmar does no longer disclose its production
Page 5 of 15
Data but as at the end of FY08, it owned 33 refining plants with combined
capacity of 9.55mn tonnes p.a. Globally, Wilmar owns 35% of world palm oil
refinery capacity. According to management, it accounted for approximately
40% of palm oil refined in Malaysia and