Broker: CGS International
Date of Report: July 18, 2025

Wilmar International Faces Heightened Regulatory Risks in Indonesia: Outlook, Financials & Peer Comparison

Introduction

Wilmar International, a leading agribusiness giant headquartered in Singapore, is under the spotlight as CGS International downgrades its stock from “Hold” to “Reduce.” The downgrade reflects emerging regulatory risks and financial uncertainties, especially in Indonesia, Wilmar’s largest production base. This comprehensive report breaks down Wilmar’s latest challenges, financial performance, peer landscape, and ESG credentials, providing investors and market watchers with a thorough analysis of the stock’s prospects.

Downgrade Rationale: Regulatory Headwinds in Indonesia

– The downgrade to “Reduce” is driven by increasing regulatory risks in Indonesia, including ongoing land confiscations and investigations related to alleged mislabelling of rice and corruption in palm oil export permits. – Volatility in global commodity prices, exacerbated by US tariffs and geopolitical tensions, is expected to cloud Wilmar’s earnings outlook. – CGS International has cut Wilmar’s FY25–27 core net profit forecast by 0.4–12.5%, primarily due to lower margins in the feed and industrial segments, attributed to declining soybean crushing and palm refining margins.

Key Investment Highlights

• Target Price: Lowered to S\$2.70 (from S\$3.15), reflecting a 9x FY26F P/E, a steeper de-rating to account for increased regulatory risks.
• Current Price: S\$3.05, representing an -11.5% downside to the new target price.
• Major Shareholders: PPB Group & Kuok Group (29.9%), Archer Daniels Midland (22.3%), Kuok Khoon Hong (12.8%).
• Free Float: 35.0%
• Market Cap: US\$14.8 billion (S\$19.04 billion)

Regulatory & Legal Challenges in Indonesia

• On June 17, 2025, Wilmar deposited Rp11.8 trillion (~US\$729 million) with Indonesia’s Attorney General’s Office as a security deposit, linked to an ongoing legal appeal over alleged corruption in palm oil export permits. While cleared by a lower court, the Supreme Court’s final verdict could result in forfeiture of this deposit.
• On July 15, 2025, Wilmar became one of four major rice producers investigated for allegedly blending lower-grade rice with premium-quality rice and marketing it as high grade. The contribution of Indonesia’s rice business to Wilmar’s operating profit is not significant, but the development adds to overall uncertainty.
• These regulatory challenges come amid land confiscations and broader scrutiny over Wilmar’s operations in Indonesia.

2Q25 Financial Preview: Margins Under Pressure

– Wilmar is projected to post 2Q25 net profit of US\$260–270 million, down from US\$343 million in 1Q25 and US\$278 million in 2Q24. – The decline is largely due to weakening feed and industrial segment margins, driven by lower soybean crushing and palm refining profitability. – Palm and sugar milling segments are also expected to see lower contributions, with 2Q25 CPO prices down 13% quarter-on-quarter and sugar prices falling by 11% quarter-on-quarter and 12% year-on-year. – The food product segment is struggling with muted sales volumes amid soft consumer demand in China and heightened promotional expenses, especially for consumer products.

Wilmar’s Acquisition in India: Adani Wilmar Limited (AWL)

– On July 17, 2025, Wilmar announced its intention to acquire up to a 20% stake in AWL Agri Business Ltd (formerly Adani Wilmar Ltd) from Adani Commodities LLP at Rs275/share. – This acquisition, part of a prior option agreement, will raise Wilmar’s stake from 44% to 55–64%, making AWL a subsidiary and enabling full financial consolidation. – The deal price reflects a 10% discount to the capped price, but still values AWL at a premium (29x FY25 P/E) compared to global peers. – Full consolidation could potentially boost Wilmar’s net profit by 10%, although near-term earnings growth in India’s consumer staples sector remains moderate. – Strategically, this move strengthens Wilmar’s long-term position in India’s fast-growing packaged food and edible oil market and secures continuity post-Adani Group’s exit from FMCG.

Financial Summary and Key Ratios

De-Rating Catalysts and Upside Risks

De-rating Catalysts:

• Unfavorable litigation outcomes in Indonesia, such as negative court rulings on palm oil permit appeals or further regulatory action on rice investigations.
• Macro-driven raw material inflation, with rising input costs from geopolitical tension and tariffs, could compress margins, especially in food products and feed/industrial segments.

Upside Risks:

• Stronger-than-expected recovery in China’s consumer demand could lift sales volumes and margins in the food products segment.
• Improvement in commodity prices, particularly for CPO and sugar, would directly enhance revenues from palm and sugar milling segments.

Peer Comparison: Valuations and Performance

Environmental, Social, and Governance (ESG) Performance

– Wilmar is included in FTSE4Good, Dow Jones Sustainability, and FTSE4Good ASEAN 5 Indices, reflecting recognized ESG practices and transparency. – Achieved a 93.2% score in the 2022 SPOTT ESG assessment, ranked first globally for palm oil transparency. – External ESG scores: B- (LSEG), 3.8 (FTSE Russell), A (MSCI), High Risk (Sustainalytics), 75 (S&P Global ESG). – Wilmar prohibits all forms of forced, trafficked, or bonded labor in its operations and supply chains, directly recruits workers in Indonesia and Malaysia, and covers all recruitment fees. – The group targets a 15% reduction in GHG emissions intensity for its palm oil mills by 2023 (baseline: 0.82 metric tonnes CO2e in 2016). – Notably, recent modifications of US Customs and Border Protection findings on labor practices have alleviated some investor concerns about spillover risks.

Financial Outlook: Key Metrics and Drivers

– Revenue is projected to grow by 7.8% in 2025, with operating EBITDA increasing by 3.6%. – Net gearing is expected to decline from 100% in 2023 to 86% in 2027, reflecting stricter capital discipline. – Dividend per share is maintained at US\$0.13, with a stable payout ratio of 52–68%. – Key operational drivers include flat FFB output growth and CPO prices stabilizing around US\$954/tonne in 2025.

Conclusion and Recommendation Framework

Wilmar International remains a major player in the global agribusiness landscape, but faces mounting regulatory and margin pressures, especially in Indonesia. While its expansion in India and solid ESG credentials provide long-term positives, the near-term outlook is clouded by ongoing investigations, legal appeals, and commodity market volatility.
CGS International’s recommendation framework categorizes Wilmar as “Reduce,” expecting a negative total return over the next 12 months, with further downside risk if regulatory outcomes in Indonesia worsen or if global macro conditions deteriorate. Investors should closely monitor both the evolving legal environment and key market drivers, particularly in China and India, to gauge the company’s recovery trajectory.

Appendix: Analyst Contact

– Lead Analyst: Jacquelyn Yow – Contact: [email protected]

Stock Rating Definitions

• Add: Total return expected to exceed 10% over the next 12 months
• Hold: Total return expected between 0% and +10%
• Reduce: Total return expected to fall below 0%