Wilmar's YKA may reach $19.7b valuation in IPO: analyst

YKA is currently backed by strong investor interest, which jacked up its IPO target.

Wilmar International’s 99.99% owned subsidiary Yihai Kerry Arawana Holdings (YKA) could be valued at $19.7b after it gets listed in the Shenzhen Stock Exchange, according to an analyst note from DBS Group Research.

It also noted that this amount is equivalent to 75% of its parent company’s market capitalisation.

“The higher price-to-earnings (PE) multiple for China operation is based on our view that YKA IPO will gain strong interest amongst the investors. WIL’s share price has performed well in the past few months due to strong 1Q20 results and reaffirmation of its China listing,” said William Simadiputra, analyst at DBS Group Research.

Simadiputra is also confident that Wilmar will be able to withstand China’s economic turbulence caused by the COVID-19 outbreak. Its strong presence in China’s staple food market means that its well-diversified product lines are irreplaceable, despite the current tough environment. The report added that Wilamr’s growing contribution from its consumer branded products in the food market segment will provide a cushion for its earnings amidst volatile commodity prices.

The company also further noted that the potential of its food business has withstood uncertainties triggered by the US-China trade war, African Swine Fever (ASF) and COVID-19 pandemic.

In Wilmar’s latest YKA prospectus, they may potentially raise $2.8b (RMB13.9b) in the IPO.

“We believe the higher fundraising target is backed by the stronger than expected interest among the investors. This is positive for YKA. It needs to raise more funds to strengthen its position in China’s food market, especially in the oilseeds and grains segment. It also needs a bigger war chest to build up its downstream segments such as branded food products,” Simadiputra commented.

Further, he added that strong interest in YKA also reaffirms that Wilmar’s share price in Singapore is undervalued. Historically, investors still associate Wilmar with palm oil related businesses despite WIL’s continuous expansion beyond palm oil businesses across China.

Other than YKA, Wilmar’s businesses are already deeply discounted even at current share price, Simadiputra said. “This will be more obvious if YKA is listed at a higher than expected multiple, generating a bigger than expected market cap of $28b (assuming 10% of new shares , and $2.8b fund raised target achieved). This implies that WIL’s current business lines across ASEAN countries and India are fully discounted at its current market cap of around $26b.”