Before I start, I will like to state that this short write up is to highlight a possible opportunistic play on Wilmar and not an in depth analysis on Wilmar’s fundamentals.
Table 1: Wilmar’s statistics vis-à-vis its peers
| Companies |
Px on
22 Sep 10 (S$) |
Px on
5 Oct 10 (S$) |
% chg
|
Analysts’ Consensus TP (S$)
|
Potential Capital Gain
(%) |
Forecast PE
(x) |
ROE
(%) |
Forecast Div Yield
(%) |
*Total Potential Return
(%) |
| Golden Agri |
0.58
|
0.58
|
0%
|
0.65
|
12.2%
|
14.1
|
12.1%
|
1.3%
|
13.5%
|
| Indofood |
2.28
|
2.31
|
1%
|
2.62
|
13.5%
|
16.8
|
17.6%
|
0.8%
|
14.2%
|
| Kencana |
0.405
|
0.40
|
-1%
|
0.39
|
-1.3%
|
38.0
|
13.2%
|
0.7%
|
-0.6%
|
| Wilmar |
6.36
|
5.91
|
-7%
|
7.33
|
24.0%
|
16.5
|
18.3%
|
1.4%
|
25.4%
|
| STI |
3,096.10
|
3,162.36
|
2%
|
Source: Bloomberg (as of 5 Oct 10)
Why the 7% drop?
According to the analysts, the short term weakness in Wilmar’s share price may be attributed to the market pricing in a weak 2HFY10 for Wilmar’s results. This is because the Chinese government has capped price increases on cooking oil for the Mid Autumn and National Day holidays. This is despite higher feedstock (i.e. raw material price), thus naturally there will be some short term adverse impact on Wilmar.
Not all is gloom and doom
According to UOB Kayhian report dated 1 Oct, the most likely scenario is that they are looking at a drop of 10-12% in Wilmar’s 2010 net profit estimates. Nevertheless, not all is gloom and doom. UOB Kayhian pointed out that the PRC government is contemplating to release some soybean and rapeseed oil stockpiles to alleviate the price hike. This would likely bring down Wilmar’s feedstock prices and reduce the pressure on its margins. Secondly, OCBC pointed out that Wilmar has a large trading business and if Wilmar is able to predict the market trends accurately, it may be able to obtain some significant gains in the trading business.
Any updates on the Indonesian value added tax (“VAT”) issue?
There are no updates yet. According to Wilmar 2Q results, management does not expect that there may be a problem in this. The total amount of VAT refunds from 2007 – 2009 amounted to US$385m. Nevertheless, this amount is small compared to Wilmar’s 1HFY10 net profit of US$746m. It is arguably better for the outcome to be announced earlier. In fact, it may rise post the announcement as there is less uncertainty on the stock.
What analysts think on Wilmar – fundamentally?
With reference to Table 2 below, analysts’ consensus target price is around $7.33, representing the largest potential upside of 24% against its SGX listed peers. Out of the 25 analyst calls, 22 advocate a “buy” whereas 1 recommends a sell and the balance calls for a neutral rating.
Technical aspect – weak but should rebound in the next few weeks
Throughout Wilmar’s 10 years of listed status in SGX, the stock has seldom hit an RSI of 27.7 (although it did hit much lower in May when the issue on VAT first arose). Wilmar has been a laggard and have also been sold off relentlessly, despite STI rally. Although the indicators are pointing to an oversold condition (but the oversold condition is not extreme yet), clients should be aware that Wilmar may not have hit the bottom yet. Nevertheless, clients can consider buying Wilmar in tranches to average out across time and price.
Price on 5 Oct 10: $5.91
Supports: $5.90 / $5.80 / $5.60
Resistances: $6.00 / $6.07 / $6.22
Note: the above supports and resistances are put forth for reference only. They may change accordingly depending on market movements.
Table 2: Analyst calls on Wilmar
Source: Bloomberg (as of 5 Oct 10)
*This writeup is an abridged version of the original writeup which was sent to clients on 6 Oct before market opens.
Disclaimer
The information contained herein is the writer’s personal opinion and is provided to you for information only and is not intended to or nor will it create/induce the creation of any binding legal relations. The information or opinions provided herein do not constitute an investment advice, an offer or solicitation to subscribe for, purchase or sell the investment product(s) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of this information. Investments are subject to investment risks including possible loss of the principal amount invested. The value of the product and the income from them may fall as well as rise. You may wish to seek advice from an independent financial adviser before making a commitment to purchase or invest in the investment product(s) mentioned herein. In the event that you choose not to do so, you should consider whether the investment product(s) mentioned herein are suitable for you. The writer will not, in any event, be liable to you for any direct/indirect or any other damages of any kind arising from or in connection with your reliance on any information in and/or materials appended herein. The information and/or materials are provided “as is” without warranty of any kind, either express or implied. In particular, no warranty regarding accuracy or fitness for a purpose is given in connection with such information and materials.
The information contained herein is the writer’s personal opinion and is provided to you for information only and is not intended to or nor will it create/induce the creation of any binding legal relations. The information or opinions provided herein do not constitute an investment advice, an offer or solicitation to subscribe for, purchase or sell the investment product(s) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of this information. Investments are subject to investment risks including possible loss of the principal amount invested. The value of the product and the income from them may fall as well as rise. You may wish to seek advice from an independent financial adviser before making a commitment to purchase or invest in the investment product(s) mentioned herein. In the event that you choose not to do so, you should consider whether the investment product(s) mentioned herein are suitable for you. The writer will not, in any event, be liable to you for any direct/indirect or any other damages of any kind arising from or in connection with your reliance on any information in and/or materials appended herein. The information and/or materials are provided “as is” without warranty of any kind, either express or implied. In particular, no warranty regarding accuracy or fitness for a purpose is given in connection with such information and materials.
It seems you have ignored your own valuation table, in that Golden Agri looks cheaper than Wilmar (I am unsure of its long term prospects, however); whilst also probably being better positioned in a period of palm oil price inflation? It seems Wilmar is set for pressure on margins and I wonder how it will meet broker forecasts, in the short term?…even despite the share price fall since this post…nick
Hi Nick,
Thx for the comment. Firstly, as mentioned, this was an opportunistic play thus more emphasis is placed on the technical aspect. Secondly, based on that valuation table, although Golden seems to be have lower PE, there is less potential upside based on analysts (at that time). Thirdly, I sent out this writeup on 6 Oct before market opens to my clients as it was a technical play then. Thereafter, it has appreciated to an intraday high of $6.48 in 7 days. If you were my client, I would have suggested that you consider taking at least some profit then. (It is noteworthy that opportunistic plays, because of the shorter time horizon, are likely to have less absolute profit).
Hope this clarifies.
Frankly, I am not able to comment on whether it can meet broker forecasts as this writeup was done with an emphasis on technical aspect.
Hereby wishing you and your family a Happy New Year!
Nice post keeps on posting this type of interesting and informative articles. cfd providers