Group 3 Wilmar

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  • Wilmar International Ltd


    Valuation reports will not be censored and will be catalogued for reference in its original submitted form. All research reports,

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    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

    Initial Coverage:

    HOLD Equity | Singapore | Plantations

    Research Analysts: Lai Wai Kit Lee Kelvin Nattaya Kris Suebjaklap Li Zhuowei +65 6321 1234

    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

    Business Activities

    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


    Geographical Segmentation

    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.

    Upstream Plantations

    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