Why Wilmar deserves to trade a premium to its plantation peers?

Wilmar’s packaged consumer products’ margins and earnings can help buffer its earnings performance when commodity prices reverse. With minimal earnings downside risk, Wilmar International deserves to trade at a premium to its plantation peers.

The consumer downstream business should continue to bear good margins and ROE in the future, especially when Wilmar’s consumer products division’s performance recovers from higher cost pressure via efficiencies or price hikes

Wilmar is trading at around 11x FY2022 P/E. The company deserves a higher valuation multiple considering its earnings track record and position as one of the leading tropical oil refiners and food processors in Asia, on top of its expansion to branded consumer goods and central kitchens

On the back of the high commodity price environment this year, the earnings split of Wilmar’s China and non-China operations in 2022 are estimated to be 30% and 70%, versus its previous assumption of 40% and 60%. DBS values the China operations at 20x FY2022 P/E while its operations outside of China is pegged to 15.0x FY2022 P/E.

Outside of China, Wilmar’s branded consumer goods division has a leading presence in India and Indonesia given its sizable edible oil refining capacity in both regions as well as 240,000 hectares of palm oil plantation assets.

Raising its FY2022 earnings estimate by 16% to US$1.89 billion, DBS believes Wilmar should be able to maintain its strong performance this year. Wilmar’s operations are expected be able to offset the impact of rising commodity prices.

DBS, UOB KH and RHB have all kept their “buy” calls for Wilmar at a target price of $6.67, $5.50 and $5.30 respectively.

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