Aletheia Capital downgrades Wilmar to ‘sell’, cuts target to S$2.50 on legal woes

[SINGAPORE] Aletheia Capital has lowered its rating on Wilmar International from “buy” to “sell” on the belief that the agribusiness group’s recent legal woes obscure its “earnings recovery narrative” and reduce its balance sheet flexibility. It has cut its price target to S$2.50 from S$3.49, after a Chinese court ruled that a unit of Wilmar’s China-listed arm was guilty of contract fraud and liable for losses amounting to 1.88 billion yuan (S$345.6 million).

At S$2.50, the independent advisory firm has applied a discount of over 20 per cent to the industry median values in view of Wilmar’s recent struggles, implying a 23 per cent downside. 

Analyst Nirgunan Tiruchelvam said in a report on Wednesday (Nov 26) that the recent development heightens reputational risk as China contributes more than half of the group’s earnings.

“The ruling has introduced a structural overhang. Wilmar intends to appeal, but the potential financial exposure may persist for several quarters,” the report said.

In September, Wilmar was found guilty of corruption, after Indonesia’s Supreme Court overturned an earlier acquittal in a graft case involving cooking oil export permits during the shortage crisis from 2021 to 2022.

Its subsidiaries may have to forfeit the 11.8 trillion rupiah (S$928 million) security deposit following the ruling.  

The revised target price is pegged to a 10 times forward price-to-earnings (PE) ratio, based on a valuation that includes the potential financial impact and elevated risk premium from the recent Chinese court ruling.

This is down from a 13 times forward price-to-earnings (PE) ratio that Wilmar was previously trading at, noted Tiruchelvam. The discount to global peers Bunge and ADM is justified, given the legal exposure risk, the analyst added. “This reflects the impaired earnings visibility and the possibility of additional legal scrutiny in China.”

Additionally, Tiruchelvam reduced his revenue estimates by 6 to 10 per cent across all segments for the period between FY2025 to FY2027. 

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Among 13 analysts, eight rated Wilmar a “hold”. The other three gave a “buy” and two analysts rated a “sell”, based on Bloomberg data.

Shares of Wilmar were trading down S$0.03 or 0.9 per cent at S$3.22 around noon with about 2.5 million shares transacted.