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Accumulating Wilmar on price weakness.

Wednesday, August 2, 2017

When I revealed my top investments earlier this year (read related post #2 at the end of the blog), some were surprised that I had a relatively large investment in Wilmar International which isn't a typical investment for income.

Of course, long time readers of ASSI would know that not all investments in my portfolio are for income although almost all lean in that direction.

Why Wilmar?

There are not many companies in the world like Wilmar when it comes to agricultural products and their distribution. 

Wilmar has amazing breadth and depth of operations. 

Its distribution network is extensive, established and still growing. 

It is a truly impressive business entity.

Potential investors should note that Wilmar is still a growth story and there continues to be quite a lot of CAPEX. 

This will continue to impact its earnings for some time to come.

In the meantime, however, they are profitable and they do pay dividends.

Since I am quite happy to be paid while I wait to benefit from their future growth, the recent decline in Wilmar's share price is an opportunity for me to accumulate.

Similar to my investment thesis for BreadTalk, I believe that when the CAPEX at Wilmar tapers off which they one day would, Wilmar's fantastic scope and scale of business would send its earnings soaring.

And while BreadTalk's extremely high PE ratio was rather unpalatable at the time when I became an investor (read related post #1 at the end of the blog), although not strictly comparable, Wilmar is currently trading at a much lower PE ratio of about 15x.

To put this in perspective, at its highest, Wilmar closed at S$7.11 a share in January 2010. 

Based on the full year earnings per share in 2009, it represented a PE ratio of above 20x.

It is important to point out that, in 2010, Wilmar's NAV per share was about 22% lower than what it is today. 

Paying S$7.11 a share then would have been a huge premium to NAV (US$1.85 per share) back then. 

Comparatively, there is more value backing each share in Wilmar today. 

This is an important distinction to make. 

Wilmar is a more valuable business entity today than it was in 2010.

Paying $3.30 a share is relatively inexpensive as I am paying a relatively small 2% premium to NAV (US$2.38 per share). US$1.00 = S$1.36.

I am also paying a lower price than what Archer Daniels Midland Co paid about a year ago to hike its stake in Wilmar from 20% to 22%, paying S$3.38 a share. (Reference: Reuters.)

Having said this, Wilmar's share price is currently in a downtrend and it could decline further and, if that should happen, I will be quite happy to accumulate again.

Finally, investors in Wilmar must be of the patient variety. 

When CAPEX tapers off, that is when Wilmar will be able to pay more generous dividends. 

Patience, I believe, will be rewarded.

See Wilmar's AR: HERE.
Related posts:


Nick said...

Came across an interesting article by the Financial Times “why soybeans are the crop of the century”. Key points highlighted in the article include:
a. As an emerging Asia eats more chicken and pork, the soybeans that put muscle on birds and swine have
spread across global farms at a faster rate than any other field crop.
b. In the next decade, soybean will drive total cropland to above 1b ha worldwide, expanding more than barley, corn, cotton, rice, sorghum or wheat, the US Department of Agriculture (USDA) has forecasted.
c. World demand for staples such as wheat has been rising in line with population growth at about 1% p.a. Soybean consumption has been accelerating at 5% p.a. – even more than corn.
d. The triumph of the soybean hinges on incomes in China. A dietary transition in China has been the main driver growth. The average person in China ate about 20kg of meat in 1989. After almost three decades of income gains, annual per-capita meat consumption has surpassed 50kg. The USDA projects China will import 121m tonnes of soybeans in a decade, up by more than 30% from today.

Wilmar is planning to expand soybean crushing capacity in China to cater to
increasing demand. Rising meat consumption which will lead to higher soybean crushing volume which bodes well for Wilmar. As mentioned by AK, Wilmar is still in growth phase and the decision to expand in China will contribute positively to Wilmar’s earnings in the FUTURE but one needs to be patience to reap the rewards...(pun intended)

AK71 said...

Hi Nick,

Love the pun. ;)

Thanks for sharing the insights. :)

Kevin said...

CEO of Wilmar is VERY OPTIMISTIC about the growth of the business. :)~~~~~~

AK71 said...

Over the long term, we expect Wilmar to gradually extend penetration of its well-established brands via its vast distribution networks in Asia’s growing markets, which will provide another earnings upside potential.

DBS Bank Ltd

Unknown said...

Share price got hammered today... time for some more accumulation action...

Unknown said...

More downside? Look like might test recent lows of 3.08

AK71 said...

Hi everydaypengs and basicz,

If Mr. Market goes into a depression, I am buying. ;)

Unknown said...

any price you are looking at? 3.08 is the recent low and looks like a good buy around those level

AK71 said...

Hi basicz,

I think $3.08 is an attractive price to add to my investment.

Anything lower would be an even better bargain. :)

AK71 said...

Reader says...
just wondering what is your take on Wilmar since it trading near it's low.. is it a bargain to buy in?

AK says...
Alamak. You must have an idea of what is a fair price to pay and have an action plan. ;)
It doesn't matter what I believe.

laurence said...

Reader says...
just wondering what is your take on Wilmar since it trading near it's low.. is it a bargain to buy in?

Alamak, it's always clearly a bargain when AK buys. Always.

AK71 said...

Hi Laurence,

I am not averse to paying what I feel is a fair price.

So, I don't always buy at bargain prices.

AK71 said...

Reader says...
Will you change your view on Wilmar if the European ban on palm oil in biofuels is being enforced considering that Europe is one of the major market for palm oil?

AK says...
Wilmar is far bigger than just palm oil and Europe is just one market and biofuel is just one product in that market.

AK71 said...

Reader says...
if you mainly invest in income, i dont get why you would go for wilmar, even if there is weakness in the share price now
wilmar dividends are very small % compared to reits, which makes it much less bang for your buck
unless you are aiming for capital gains, but that doesnt make a lot of sense as well as i doubt that the potential capital gain would be higher than, say, AIMS AMP + dividends.
your thoughts, many thanks!
what im trying to say is that $1 in AIMS AMP gives much better return than $1 in Wilmar

AK says...
You might want to read this blog again 😉

derric said...

Hi AK,

It has been awhile since you last mention Wilmar?
Do you still hold it?

derric said...

Hi AK,

It has been awhile since you last mention Wilmar?
Do you still hold it?

derric said...

Hi AK,

It has been awhile since you last mention Wilmar?
Do you still hold it?

AK71 said...

Hi derric,

Still waiting for their IPO in China to happen.

Seems like there is a slight delay.

I updated the comments section recently on this:

You will see the most recent comments in the left side bar of my blog.

It only shows if you are using the web version of my blog and not the new mobile version.

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