Wilmar International’s Turnaround: Analyst Upgrades Stock Amid Strategic Expansion and Rising Margins

Wilmar International, a key component of the Straits Times Index (STI), has seen its share price drop by 10% over the past year, trailing the stellar performances of banks and industrial names like Yangzijiang Shipbuilding. Over a three-year period, the decline is even more pronounced at 30%. Yet, there’s a promising shift on the horizon, according to Nirgunan Tiruchelvam of Aletheia Capital.

A Strategic Move in India

On Dec 30, 2024, Wilmar announced a significant decision to acquire a controlling stake in its Bombay-listed joint venture, Adani Wilmar. Previously holding a 44% stake, Wilmar will increase its ownership to 75% as its partner, Adani, reallocates focus to other businesses. Adani Wilmar, a leading supplier of cooking oil, flour, and other food staples in India, is considered integral to the country’s food industry.

“Adani Wilmar is at the core of India’s food sector,” says Tiruchelvam, signaling the joint venture’s potential to drive long-term growth for Wilmar.

From Bearish to Bullish

Previously cautious about Wilmar’s exposure to the unwinding of carry trades, excessive leverage, and poor returns, Tiruchelvam has now upgraded his stance. His Jan 10 report shifted the stock from “sell” to “buy,” raising the target price to $3.54, a significant leap from $2.10. “The stock has fallen by 30% since our initiation in August 2023. These risks seem to be priced in,” he explains.

The analyst also raised Wilmar’s EBITDA forecasts for FY2025 and FY2026 by 9%, citing improving margins as a key driver. Soybean oil inventory levels, at their lowest since 1976, are expected to buoy the company’s soy processing operations, a core profit center.

Generous Dividends Keep Investors Engaged

Wilmar has a reputation for rewarding its shareholders with consistent and generous dividends. Over the last decade, its payout ratio has hovered between 40% and 55%. In FY2023, the company paid a dividend of 17 cents per share and maintained an interim dividend of 6 cents for 1HFY2024. The current indicated dividend yield of 5.5% is at a record high, providing investors with a compelling reason to stay invested.

Undervalued Stock with Hidden Gems

Despite Wilmar’s near-90% stake in its separately listed Chinese subsidiary, Yihai Kerry Arawana Holdings Co., which is valued at $30 billion, Wilmar’s own market capitalization stands below $20 billion. This discrepancy suggests that the market has overlooked the value of Wilmar’s other assets, including its recently enhanced stake in Adani Wilmar, which is valued at $1.76 billion based on its 44% ownership prior to the new acquisition.

Confidence from Insider Buying

Chairman and CEO Kuok Khoon Hong has historically demonstrated confidence in the company’s prospects by purchasing shares on the open market, particularly when the stock hovers around $3. This trend has been noted as a potential floor for the share price, boosting investor sentiment.

Bright Future on the Horizon

With the prospect of falling interest rates and a strong dividend yield, Wilmar is positioning itself as a robust contender for investors seeking growth and stability. Tiruchelvam underscores the potential for insider buying and reiterates optimism about the company’s strategic direction.

For investors, Wilmar’s improving margins, strategic expansion into India’s booming food sector, and consistent dividends present an attractive package. While the stock has faced challenges, the tide appears to be turning, offering a promising opportunity for those ready to ride the wave of recovery.

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