Singapore | Food Products

Asia Pacific Equity Research

WILMAR INTL | HOLD

MARKET CAP: USD 18.4B AVG DAILY TURNOVER: USD 22M 26 Nov 2013 Company Update

FORMS CHINA CORN STARCH JV

Corn starch JV in China No immediate earnings boost Upside probably limited

HOLD (maintain)
Fair value add: 12m dividend forecast versus: Current price 12m total return forecast
Analysts Carey Wong (Lead) +65 6531 9808 carey@ocbc-research.com Lim Siyi +65 6531 9824 limsiyi@ocbc-research.com Key information Market cap. (m) Avg daily turnover (m) Avg daily vol. (m) 52-wk range (S$) Free float (%) Shares o/s. (m) Exchange BBRG ticker Reuters ticker ISIN code GICS Sector GICS Industry Top shareholder Relative total return Company (%) STI-adjusted (%) Price performance chart S$22,968 / USD18,374 S$28 / USD22 8.3 3.02 - 3.92 30.6 6,397.8 SGX WIL SP WLIL.SI F34 Consumer Staples Food Products Wilmar - 40.6% 1m 4 5 3m 18 14 12m 16 6

S$3.55 S$0.06 S$3.59 1%

Forms China corn starch JV

Wilmar International Limited (WIL) recently announced that it has formed a JV with Tereos Internacional called Liaoning Yihai Kerry Tereos Starch Technology Co Ltd. The move will see Tereos acquiring 49% of the JV company from WILs subsidiary for RMB208m; the JV will engage in the operation of a corn starch facility in Tieling (Liaoning Province) with a current annual processing capacity of 700k tons of corn. According to WIL, the acquisition marks the second important step in the development of the major partnership with Tereos in the rapidly growing market for starch-based products in China. However, we do not see any immediate impact on earnings. Shares already ran up sharply Meanwhile, the recent recovery in CPO (crude palm oil) prices has lifted plantation stocks (WIL rose as much as 17% after our upgrade to Buy on 6 Sep), but we believe that some of these optimism may be overdone. For one, WIL is still a net buyer of vegetable oil (including CPO) and a continued rise of input prices could result in a margin squeeze for its consumer packs. Note that because cooking oil is an essential food item, it may also be subject to price caps should inflation in China rises faster than the governments guidance. Secondly, the enthusiasm over the Indonesian governments doubling of the bio-diesel mandate to 10% blend may be a bit premature. A recent Platts report suggested that the Pertamina tender may not offer as fat a profit margin as what the market is expecting. Maintain HOLD with S$3.55 fair value Currently, WIL is trading close to our unchanged fair value of S$3.55 (based on 12.5x FY14F EPS), suggesting that the stock looks fairly priced around here. From a historical perspective, we see that WILs valuation is already close to its 2-year average. Hence, we opt to maintain our HOLD rating. We also advocate taking profit closer to S$3.70.

Sources: Bloomberg, OIR estimates

Key financial highlights Year Ended 31 Dec (US$m) Revenue EBITDA Operating Profit Net Profit EPS (US cents) Cons. EPS (US cents) Price/NTA (x) EV/EBITDA (x) Net Gearing (%) ROIC (%) FY11 44,710.0 1,725.9 1,510.4 1,600.8 25.0 na 2.0 17.9 97.2 4.7 FY12 45,463.4 1,976.4 1,462.6 1,255.5 19.6 na 1.8 16.0 95.4 3.4 FY13F 44,073.0 1,961.6 1,234.0 1,251.1 19.5 20.5 1.7 15.5 82.3 3.5 FY14F 48,001.3 2,098.5 1,344.0 1,419.5 22.2 22.9 1.5 14.0 70.1 4.1

Industry-relative metrics

Note: Industry universe defined as companies under identical GICS classification listed on the same exchange. Sources: Bloomberg, OIR estimates

Please refer to important disclosures at the back of this document.

MCI (P) 004/06/2013

OCBC Investment Research Singapore Equities

Exhibit 1: WILs PER Trend

Source: Bloomberg, OIR

OCBC Investment Research Singapore Equities

Company financial highlights

Income statement Year Ended 31 Dec (US$m) Revenue EBITDA Depreciation & amortisation Operating Profit Net interest Associates Exceptionals Pre-tax profit Tax Net Profit

FY11 44,710.0 1,725.9 -478.1 1,510.4 -188.1 185.3 0.0 2,078.7 -379.2 1,600.8

FY12 45,463.4 1,976.4 -542.7 1,462.6 -177.7 123.1 0.0 1,654.6 -334.2 1,255.5

FY13F 44,073.0 1,961.6 -727.5 1,234.0 -259.4 180.0 0.0 1,604.6 -288.8 1,251.1

FY14F 48,001.3 2,098.5 -754.5 1,344.0 -203.4 180.0 0.0 1,820.6 -327.7 1,419.5

Balance sheet As of 31 Dec (US$m) Cash Other Current Assets Fixed Assets Other long term assets Total Assets Current Liabilities less Debt Debt Other Long Term Liabilities Shareholders Equity Total Equity and Liabilities

FY11 7,898.4 15,866.4 7,468.9 8,406.1 39,639.8 3,720.7 20,888.9 781.8 13,370.2 39,639.8

FY12 8,562.2 15,257.3 8,923.7 9,176.9 41,920.1 3,673.0 22,245.3 806.6 14,345.9 41,920.1

FY13F 7,732.9 14,634.0 8,196.2 9,176.9 39,740.1 2,869.1 20,246.0 498.0 15,212.9 39,740.1

FY14F 6,992.6 15,694.6 7,441.8 9,176.9 39,305.9 3,006.6 18,435.4 548.5 16,327.9 39,305.9

Cash flow statement Year Ended 31 Dec (US$m) Profit Before Tax Working Capital Changes Net Cash from Operations Capex Investing Cash flow Change in Equity Net Debt Change Financing Cash Flow Net Cash flow Ending Cash Balance

FY11 2,459.2 21.6 1,947.7 -1,553.8 -2,068.2 46.9 2,980.7 999.7 879.2 7,898.4

FY12 2,200.7 -580.9 1,067.7 -1,735.2 -2,028.5 13.3 1,989.7 1,209.5 248.8 8,562.2

FY13F 3,091.6 -346.6 2,794.2 -1,200.0 -1,354.8 0.0 -1,999.3 -2,268.6 -829.2 7,732.9

FY14F 3,278.5 -423.2 2,601.4 -1,000.0 -1,147.0 0.0 -1,810.6 -2,194.7 -740.3 6,992.6

Key rates & ratios EPS (US cents) Fully Diluted EPS (US cents) PER (x) Price/NTA (x) EV/EBITDA (x) Dividend Yield (%) ROIC (%) ROE (%) Net Gearing (%) PE to Growth (x) Sources: Company, OIR forecasts

FY11 25.0 25.0 11.2 2.0 17.9 1.7 4.7 12.0 97.2 0.5

FY12 19.6 19.6 14.3 1.8 16.0 1.4 3.4 8.8 95.4 -0.7

FY13F 19.5 19.5 14.4 1.7 15.5 1.7 3.5 8.2 82.3 -41.0

FY14F 22.2 22.2 12.6 1.5 14.0 1.7 4.1 8.7 70.1 0.9

Company financial highlights

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SHAREHOLDING DECLARATION: The analyst/analysts who wrote this report holds/hold NIL shares in the above security.

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RATINGS AND RECOMMENDATIONS: - OCBC Investment Researchs (OIR) technical comments and recommendations are short-term and trading oriented. - OIRs fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month investment horizon. - As a guide, OIRs BUY rating indicates a total return in excess of 10% based on the current price; a HOLD trading indicates total returns within +10% and -5%; a SELL rating indicates total returns less than -5%.

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Important disclosures