Margin-squeezed Wilmar poised for a comeback: UOB

Its high plantation landbank and effective product diversification will continue to push growth.

Wilmar International is now the second-largest plantation landbank owner in Asia with its 45% unplanted areas, which in the face of scarce plantation land, should drive up land value growth.

Its current short-term headaches on plummeting margins might be eased soon, said UOB, as its diversification effocts start support its battered oilseed and grains division.

Here's more from UOB Kay Hian:

Large landbank is most valuable. Good plantation land without environmental controversies is getting scarce, which drives land valuations higher. Wilmar has a total of 613,000ha of land that is now worth about US$4,172m (US$0.65/share) based on the current market price (excluding its African landbank). Its 45% unplanted areas will continue to ensure long-term upstream growth and make Wilmar the second-largest plantation landbank owner after Sime Darby.

Riding on growing consumer affluence in emerging markets. The major developing economies in Asia and now Africa are the key markets for Wilmar. The company dominates the edible oil market and is now expanding into rice, flour and sugar in China (40-45% branded cooking oil market share), Indonesia (among top three players in branded cooking oil) and India (top in branded cooking oil). Recent acquisitions of strong consumer franchises – for example, Goodman Fielder with iconic brands such as Meadow Lea, White Wings, Mighty Soft – will further enhance its consumer pack business.

Volume growth to mitigate margin volatility. The benefit of Indonesia’s supernormal refining margin will be more apparent with the 50-60% expansion of palm oil refinery capacities in Indonesia. The disappointment in 4Q11 was because the margin from Indonesia was offset by losses in other regions (60% of total capacity). But with the new capacities (to add 50-60% by end-13), Indonesia's refining contribution would be more significant, i.e. from 40% of total to 55%. While China's soybean crushing business remains tough, the oilseed and grains division's margin is likely to gain more support from Wilmar's product diversification into rice and flour milling, corn and rapeseed crushing.

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