Company Name: WILMAR INTERNATIONAL LIMITED
| Research House: CIMB | Price Call: BUY | Target Price: 3.90 |
CIMB upgrades Wilmar to Outperform from Neutral, expecting the stock to re-rate on its undemanding valuations and an improving crushing margin in 2013. It estimates the stock trades at only 1.2x FY12 P/BV, a 40% discount to its three-year average of 2.1x, which doesn’t price in Wilmar’s strong distribution channel and integrated business model, it says.
Wilmar’s recent share buybacks and major shareholders’ share purchases suggest the stock may have bottomed, while the stock’s poor showing this year is an overreaction to its poor earnings visibility, CIMB says.
The current high palm-oil inventory situation has shifted bargaining power from planters to refiners, benefiting Wilmar’s refining business, which accounts for around 30% of the company’s earnings, it says, noting the refineries are enjoying high utilisation rates and attractive raw-material costs.
It cuts FY12-14 earnings forecasts by 2%-6% after lowering 2012-14 CPO price assumptions by 7%-9%, but it still expects FY13-14 earnings to rise 26% and 12% respectively on better contributions from its oilseeds and grains division. It raises its target to $3.90 from $3.52 after eliminating the previous 10% discount to the sum-of-the-parts valuation. The stock is up 0.9% at $3.22, but remains down nearly 36% year-to-date.
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