Maintain BUY and SGD3.69 Target Price, 15% upside, with a 3.4% yield.
Wilmar remains our Top Pick for exposure to the plantation sector.
We raise FY18 earnings estimate by 5% on the back of a strong 3Q18 result, while 4Q outlook remains optimistic.
Moving into FY19F, we believe there is potential for another special dividend, after the IPO of its China operations takes place, which could further boost its dividend yield.
During the 3Q18 analyst briefing, Mr Kuok, the CEO, highlighted that China sees no shortages of soybeans despite the China-US trade war. Hence, we believe the group still has adequate reserves of soybeans to maintain an above-average crushing margin for 4Q18. However, we believe the low-cost inventory will deplete in early FY19 and crush margins should go back to a normalised level next year.
Maintain BUY with unchanged SOP-derived Target Price SGD3.69.
Wilmar's China IPO is now expected to occur in 8Q-8Q88 and we believe it to be a key catalyst to share price.
We note that Wilmar typically generates > USD8bn in EBITDA and invests c.USD8bn each year as such, there is little need for additional capital. Proceeds from its China IPO are likely to be distributed as special dividends.