Broker's take: Maybank KE raises TP for Wilmar on potential Q4 surprises

MAYBANK Kim Eng has raised its target price for Wilmar International to S$6.80 from S$5.40 previously, while identifying a number of potential upside surprises for the agri-business group ahead of its Q4 2020 results announcement.

In a Wednesday report, analyst Thilan Wickramasinghe maintained his "buy" call on the stock with unchanged earnings per share estimates. He, however, updated his blended discounted cash flow and peer price-to-earnings forecasts for Wilmar in accordance to the latest price movement of its peers.

Noting a record-high level of Chinese soya bean crush margins in Q4 of 2020, he expects this to result in "significant upside surprise" to Wilmar's crush margins for the quarter.

An over 30 per cent rise in palm oil prices for the last quarter is likely to contribute to higher profit margins for the group's upstream business as well, said Mr Wickramasinghe. Coupled with raised taxes on Indonesian palm oil exports, he foresees a positive influence on Wilmar's refined palm oil exports.

The group's food products business could see further acceleration in recovering hotel and restaurant demand in China as activities increased with Covid-19 containment, he added.

At the share price of S$5.08, Mr Wickramasinghe estimates Wilmar to have rerated 21 per cent in the past month. As such, he believes significant upside exists and may trigger "further actions to unlock value" such as more asset carve outs or privatisation.

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Wilmar's 90 per cent-owned Chinese subsidiary, Yihai Kerry Arawana Holdings (YKA) has risen 2.2 times since its initial public offering (IPO) on the Shenzhen Stock Exchange, noted the analyst. This means the parent company is currently trading at a 75 per cent discount on the Singapore Exchange, he said, with its other regional businesses having no implied value.

"While there are advantages by the fact that (Wilmar) is listed in Singapore (such as funding access), the large valuation differential may catalyse further strategies to unlock value. Over the longer term, this may include further asset hive-offs or privatisation, we believe."

Wilmar shares were up S$0.09 or 1.8 per cent at S$5.14 as at the midday trading break.