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Hot stock: Wilmar sees active trading after announcing China unit's IPO price

SHARES of Wilmar International saw heavy trading on Thursday after it announced that the proposed listing of its 99.99 per cent-owned China subsidiary, Yihai Kerry Arawana (YKA) will carry an issue price of 25.7 yuan per share and is expected to raise 13.9 billion yuan (S$2.81 billion).

The counter was the most traded stock by value on the Singapore bourse on Thursday. The agri-food giant had called for a trading halt on Wednesday morning, which it lifted on Thursday before market open.

Its shares began the day at a high of S$4.425, before dipping to an intra-day low of S$4.24 at 10.06am. The stock regained some momentum to trade at S$4.37 as at 3.20pm, down S$0.01 or 0.2 per cent from the previous day's close. Almost 20 million shares worth S$85.9 million changed hands.

Wilmar on Thursday morning said the issue price works out to a price-to-earnings (P/E) multiple of 31.12 times based on YKA's FY2019 recurring net profit and enlarged post-initial public offering (IPO) share capital.

It added that the average P/E multiple of other listed companies in the same industry as YKA for the immediate preceding month was 41.86 times.

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The Chinese subsidiary will issue new shares amounting to about 10 per cent of its enlarged share capital under the IPO, which means Wilmar will retain majority control.

Analysts have been optimistic as they see YKA's initial public offering (IPO) unlocking value for Wilmar shareholders.

OCBC Investment Research wrote in a note on Sept 17 that Wilmar's share price could potentially trade in the range of S$4.44 to S$6.50 after the IPO, assuming a P/E ratio of 14 times for Wilmar's ex-YKA business, at a 15 per cent conglomerate discount.

The research team said the listing will unlock value for Wilmar shareholders and further grow Wilmar's business in China. OCBC expects the performance of the conglomerate's core business to remain resilient in the second half of this year, pandemic notwithstanding.

OCBC, which rated Wilmar a "buy" with a S$5.40 fair value as at Sept 17, pointed out that a portion of the IPO proceeds will also be distributed to shareholders as a special dividend after the listing.

Meanwhile, in a Sept 16 note, CGS-CIMB analysts said the market could be underestimating YKA's potential value. This, coupled with the potential special dividend and Wilmar's favourable earnings prospects, led to the analysts reiterating their "add" call and S$5.53 target price on the mainboard-listed counter.

CGS-CIMB likewise said the listing would help unlock value for Wilmar's China operations and catalyse its share price.

Last month, RHB wrote that it expects YKA to rerate to a forward P/E of at least 35 times after the IPO, in line with its peers' average, and estimated that the post-IPO special dividend would be S$0.10 per share.

However, Tellimer head of consumer equity research Nirgunan Tiruchelvam earlier this month advised investors to be patient, as the market could be overvaluing Wilmar based on the expectations of a listing for the China unit.

"The IPO is by no means a certainty," Mr Tiruchelvam told The Business Times. "The fear is that there's too much riding on the China IPO."

He pointed out that some IPOs had fallen through the cracks or disappointed investors in terms of valuations.

Wilmar on Thursday said that while the proposed listing is planned to take place by mid-October, it is subject to prevailing market conditions, and there is no certainty that it will proceed.

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