Wilmar International (WIL SP) – Signs of Spring: Improving China Prospects Should Drive Growth

Broker: Maybank Research Pte Ltd

Date of Report: February 24, 2025

Company Overview

Wilmar International Ltd. is an investment holding company that engages in the processing, merchandising, and distribution of agricultural products. The company has established itself as a market leader in essential food items and staples across high-growth emerging markets, including China, India, Southeast Asia, and Africa.

4Q24 Earnings and Future Expectations

Wilmar’s fourth quarter earnings for 2024 disappointed, yet analysts believe this to be the bottom point. Margins are stabilizing as input costs decline, and the company is gaining scale advantages. Volume improvement has been seen across all business segments as demand recovers and crush margins strengthen. The anticipated acceleration of fiscal stimulus from the Chinese government, along with sustained domestic demand in key markets, is expected to enhance growth prospects moving forward. Consequently, the target price has been increased to SGD 4.05, reflecting higher earnings, leading to an upgrade to a “BUY” recommendation.

China’s Recovery and Demand Growth

The Food Product segment reported an impressive 11% year-over-year volume increase, indicating stronger demand from China, which saw a GDP growth of 5.4% in 4Q24. The Feed and Industrial Products segment also showed robust growth with a 21% increase in volumes. Furthermore, improved crush margins were due to a 4.4% decline in soybean prices quarter-over-quarter in 4Q23, driven by record soybean production in Brazil. Management expects these trends to continue as U.S. policies aimed at reducing biofuel mandates may further decrease soybean demand, positively impacting Chinese crush margins.

Risks and Challenges

Despite the positive outlook, there are risks involved. A recent media report highlighted a corruption case regarding crude palm oil (CPO) in Indonesia, where substantial penalties are sought. Although these are merely charges at present, a guilty verdict could significantly impact earnings. Management is committed to contesting the charges vigorously and maintains a zero-tolerance policy towards corruption.

Financial Performance and Capex Expectations

Maybank has upgraded its net profit after tax (NPAT) estimates for FY25-26 by 4%-23%, reflecting a more optimistic demand recovery trajectory in China and the region, as well as falling input costs. Capex expectations have also been lowered by 23%-30% following the latest management guidance, which is projected to drive higher free cash flow generation. This combination of factors has led to an increase in the target price derived from a blended discounted cash flow (DCF) and peer price-to-earnings (PE) analysis.

Valuation Metrics

At the revised target price, Wilmar trades at a PE of 13x, which is below its long-term average of 15x. The company’s financial metrics indicate a significant improvement in core EPS growth, with projections indicating a solid future revenue trajectory, leading to a more favorable investment outlook.

Peer Comparisons and Market Position

Wilmar operates in a competitive landscape with several peers, including New Hope Liuhe Co, Tongwei Co Ltd, and Yihai Kerry Arawana Holdings, among others. The market capitalization weighted average PE for developed markets stands at 9.8x, while emerging markets show a higher average at 16.6x.

Conclusion and Recommendation

Overall, the analysis of Wilmar International presents a company poised for recovery with positive growth prospects in the near term, particularly in the Chinese market. Given the favorable conditions and management’s proactive approach to risk management, Maybank Research has upgraded its recommendation to “BUY,” with a target price of SGD 4.05 representing a potential upside of 31% from the current share price.