Wilmar International unaffected by China price caps

China price caps still in place. Recent media reports suggest that China is maintaining its price caps on essential food items for now, with some even speculating that the government could keep these caps until MidAutumn Festival in early Oct; these measures are part of Beijing's efforts to
contain inflation. Earlier in Jun, a Reuters report citing industry sources said that China has lifted the 7-month cap on retail vegetable oil prices; although it notes that it is unclear if cooking oil producers still need government approval to raise prices following the removal of the price freeze.

No impact on Wilmar. In any case, we do not expect the latest developments to have any impact on Wilmar International Limited (WIL), as the company has reportedly said that it was not aware of any change in the government's stance towards the price controls. Furthermore, WIL had earlier revealed that the Chinese government has released some 1.2m tons of subsidized soy beans to WIL (which can be converted into 200k tons of cooking oil); this in an effort to reduce cost pressures on the major cooking oil producers. As such, we believe that its Consumer Product segment's PBT margin per ton should be bottoming.

Maintain HOLD with S$5.68 fair value. Nevertheless, we believe that inflation in China (and other parts of the world, especially in developing countries) could continue to be an issue and we would monitor the situation closely. Meanwhile, the renewed risk of a global economic slowdown (including in China) could also cap the stock's upside potential in the near to medium term. As such, we maintain our HOLD rating and S$5.68 fair value. We would be buyers closer to S$5 as we do see better long-term prospects for the group, buoyed by its recent expansion in the sugar industry; this following the recent planned acquisition of the business assets of Proserpine Co-operative Sugar Milling Association.