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Hot stock: Wilmar shares surge after China unit gets IPO nod

SHARES in Wilmar International rallied on Thursday morning, after the mainboard-listed agribusiness on Wednesday said its Chinese unit, Yihai Kerry Arawana (YKA), has received final registration approval from the China Securities Regulatory Commission for its initial public offering (IPO).

The listing of YKA on the Shenzhen Stock Exchange's ChiNext Board is expected to take place by mid-October, Wilmar announced.

As at 12.21pm on Thursday, Wilmar shares were trading at S$4.39, up S$0.09 or 2.1 per cent. Some 19 million shares changed hands, making it one of the most heavily traded counters on the Singapore bourse. 

The stock had surged to an intra-day high of S$4.56 in early trade, advancing S$0.26 or more than 6 per cent from last night's close.

CGS-CIMB analysts Ivy Ng and Nagulan Ravi are positive on the news, as they believe that the listing could catalyse Wilmar’s share price and help “unlock value” for the group’s assets in China which makes up about 60 per cent of its earnings.

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The brokerage has maintained its “add” recommendation on the counter with a target price of S$5.53. This represents a 28.6 per cent upside from Wilmar's closing price of S$4.30 on Wednesday.

“The next event that investors will be watching out for is the pricing of the IPO. The IPO pricing will be based on investor demand and YKA’s 2019 recurring earnings of 4.5 billion yuan (S$904.7 million),” the analysts wrote in a research note on Wednesday. 

Based on CGS-CIMB’s estimates, the market could be "underestimating YKA’s potential" as the implied price-to-earnings ratio for YKA at Wilmar’s current price is 19.4 times, versus 38 times for its peers, the brokerage said.  

CGS-CIMB noted that Wilmar’s share price had corrected from its year-to-date peak of S$4.86 on Aug 19 due to concerns of a short-term overhang on the counter from the placement of shares by its second-largest shareholder, Archer Daniels Midland (ADM). 

Following the news that ADM had decided to trim its stake in the agri-commodities company, Wilmar shares tumbled 10 per cent on Aug 20

Notwithstanding this, the brokerage remains positive on Wilmar due to its favourable earnings prospects and the potential of a special dividend following the listing of YKA. 

Earlier on Wednesday, Wilmar said the listing will entail the issuance of new YKA shares, accounting for not less than 10 per cent of YKA's issued share capital on an enlarged basis.

The group also noted that strategic investors - which constitute mainly state-owned funds, sovereign wealth funds and insurance companies - have been identified to subscribe for about 30 per cent of YKA's IPO shares.

The final subscription size by the strategic investors, as well as the composition of the strategic investors, are still subject to final confirmation by the regulatory authorities, Wilmar added.

Although the long-awaited final registration approval has been received, Wilmar said "there is no certainty that the proposed listing will proceed" as it is still "subject to prevailing market conditions".

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