Can Wilmar regain its early-August form?

Why did the Wilmar stock plunge 11.5%?

Palm oil producer Wilmar International’s (SGX: F34) shares are still down some 9% from record highs achieved three weeks ago.

The stock plunged as much 11.5% after was reported last Thursday 20 August 2020 that one of its main shareholders – namely Chicago-headquartered Archer Daniels Midland (ADM) – had reduced its stake in the agribusiness group by 2.68% through a share sale kickstarted a day earlier.

A total of 170.5 million Wilmar shares, priced at S$4.40 each (9% below the last traded price on the day of the announcement), were offloaded. This amounted to S$750.2 million in sale proceeds for ADM.

On 26 August 2020, ADM also issued US$300 million (S$408 million) worth of zero-coupon exchangeable bonds maturing in 2023 at 104% of their principal amount.

ADM added that it plans to retain at least 20% of its total shareholding in Wilmar.

According to an ADM statement, the Wilmar Shares sold were being offered and sold in offshore transactions, as well as inside the US, to qualified institutional buyers in private transactions exempt from the registration requirements of the Securities Act.

Wilmar shares hit an eight-year high on 13 August

Wilmar’s share price has recovered slightly since, but remain some ways below an eight-year peak of S$4.90 recorded earlier this month (13 August 2020).

Wilmar’s share price had rallied strongly after it posted a 50% year-on-year improvement in net profit to US$610.9 million (S$829 million) for the six months ended 30 June 2020.

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The group’s board of directors consequently proposed an interim tax exempt (one-tier) dividend for H1 2020 of S$0.04 per share, 33% higher than 2019’s first half dividend amount of S$0.03.

Following that, we had included Wilmar in our 'Top Singapore Dividend Stocks to Watch' list.

However, Wilmar’s Chairman and CEO Mr. Kuok Khoon Hong had stated that the group is ‘cautiously optimistic’ that its second half performance ‘will be satisfactory’, even despite palm prices increasing recently.

Analysts maintain their ‘buy’ rating on Wilmar

Following the share sale by ADM, CIMB analysts maintained their ‘add’ rating on the stock and a target price of S$5.53 a share.

They noted that while the development ‘could lead to concerns over short-term overhang on Wilmar shares’, they also believe this will allow ADM to ‘unlock’ the value of its investments in Wilmar.

The analysts also remain positive on Wilmar’s planned initial public offering of its Chinese subsidiary Yihai Kerry on the Shenzhen Stock Exchange ChiNext Board, currently pending final registration approval.

Finally, they reiterated that Wilmar’s favourable earnings prospects for the rest of the financial year, alongside another round of potential special dividend, are key share price catalysts.

Nevertheless, some key risks to the current call include delays in Yihai Kerry’s listing, lower-than-expected processing margins from key business divisions, as well as share placement by major shareholders at a discount to market price.

As of 28 August 2020, the stock has received a 12-month consensus share price target of S$5.04 per share from six analysts - unchanged from two weeks ago.

This also come alongside an average rating of ‘buy’ – based on a Refinitiv poll of 15 brokers, unchanged from 13 August 2020.

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