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Wilmar International: Free stuff with every purchase.

Friday, June 10, 2022

I increased my investment in Wilmar, averaging up in the process, as it seems to fall out of favor with Mr. Market once again.

The last time I increased my investment in Wilmar was in August last year at a similar price level.

Back then, I said I was pretty happy to add to my investment at a price much lower than what Mr. Kuok paid in June in the same year.

Now, I feel the same way, especially when Wilmar has been doing share buybacks constantly even at much higher prices.

Wilmar has been undervalued for a long time and it is still deeply undervalued today.

The case for investing in Wilmar is even more compelling today especially if we believe that heightened inflation is here to stay for a longer time.

If we believe that there is going to be stagflation, then, companies like Wilmar will likely be the ones which do better as they provide essential goods and services.

If you are interested in my little ideas on Wilmar, I will provide links to my past blogs on Wilmar at the end of this blog because I am too lazy to rehash.

However, here are a couple points which I might or might not have mentioned before, off the top of my head:

1. Wilmar's subsidiary in China, Yihai Kerry Arawana Holdings (YKA) in China has a market cap that is about three times that of Wilmar's market cap in Singapore and Wilmar still holds a 90% stake in YKA.

2. Wilmar's 50% joint venture in India, Adani Wilmar Limited, has achieved similar success in its public listing as its market valuation has tripled since listing in February this year.

Wilmar is a profitable business and is reliable when it comes to paying dividends.

Wilmar paid meaningful dividends even during the COVID-19 pandemic bear market.

Wilmar can easily unlock value for shareholders by reducing its stakes in the abovementioned businesses alone.

Undervalued can remain undervalued for a long time, of course, which makes Wilmar a decent choice for investors who are pretty happy to be paid while waiting.

Investing in Wilmar today or at even lower prices, if we are lucky, is to get big chunks of good income producing businesses for free.

Whether it be stocks or socks, we like buying when they are marked down but what about having some pretty cool stuff thrown in for free with our purchase?

AK is being mental again. (TmT)

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1. Wilmar's interim dividend.
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4. Accumulating Wilmar on price weakness.


garudadri said...

Dear AK
Thanks once again for highlighting the points in favor of F34. I am patiently waiting for past several months to start my account here. I fully agree regarding undervaluation as well as the secular trends that would favor agribusinesses the world over
The company is broadly diversified across cooking oils, palm oil and sugar as well S other stuff and this is into favor. The Adani Wilmar group listed at Mumbai has done well and their FORTUNE brand cooking oil is the market leader as far as market share is concerned.
I was adamant to get in only at 4$ earlier this year and missed it. I am now waiting for circa 4-10 and hoping to get it as the broader market might drop and plan to add more under or around 4
However, we need to factor in the following to ensure margin of safety
1- Commercial palm oil prices are expected to drop considerably in H2/2022, As per current weather predictions . This would need to be considered whilst adding to positions.
2- Deterioration of fiscal positions from governments might result in export duties being levied on valu added palm oil products and even sugar as their sugar operations are in India. This hopefully will be avoided if the current geopolitical tensions abate
3- Input costs in terms of both labor costs as well as fertilizer costs are soaring and this will impact agribusiness worldwide
Lastly, oil will be relevant as crude prices are a big dampener not only in terms of transport costs for Wilmar but also in terms of reduced global disposable incomes eating into sales and profit margins

The last point applies to all consumer staples and agribusinesses and not specific to Wilmar
Overall, an excellent diversified conglomerate that I am waiting to invest in

AK71 said...

Hi Garudadri.

Thanks for the very thoughtful comment. :)

All valid concerns but I am hopeful that Wilmar will be able to pass on a large part of its increase in cost of doing business to consumers.

I also see a definite possibility of governments stepping in with subsidies to help cushion the impact of rising prices to help keep their people fed.

Technically, the longer term support is at $4 a share and I was waiting to add at that price too but it seems that the more immediate support level at $4.10 has been pretty strong.

So, I find a few cents higher than $4.10 is pretty acceptable since it isn't going to make a big difference in the long run. :)

garudadri said...

Dear AK
Agree, I realised the same- loosened my target price !
Best wishes

AK71 said...

Hi Garudadri,

Getting a foot in the door for a start is not a bad idea. :)

SgFire said...

Great to hear someone is adding alongside

AK71 said...

Hi SgFire,

I hope we don't suffer confirmation bias. ;p

Bananamint said...

Hi AK,

Will Wilmar’s high gearing % be of concern in a rising interest rate environment?

AK71 said...

Hi Bananamint,

From what I know, Wilmar's gearing is largely to facilitate trading and not tied to some long term illiquid commitment.

Having said this, as long as the higher financing cost can be passed on to customers in the form of higher prices, Wilmar should do well enough.

We need food and if prices are higher, we will pay the higher prices.

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