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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.
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.
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.
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.
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.
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.)
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.
When CAPEX tapers off, that is when Wilmar will be able to pay more generous dividends.
Patience, I believe, will be rewarded.
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