What is the value of a bag of rice?
If you ask a homemaker, a bag of rice may feed her family for a week. Ask a grocer, a bag of rice is a product that can be sold for a profit margin or commission. If you ask a brewer, a bag of rice is a raw material that can be processed into wine which could be sold at a value multiple times of the price of a bag of rice. As such, the true value of a bag of rice depends on who the user is and how the user intends to use it.
So, what is the value of S$ 100,000?
If you ask Mr. Kuok Khoon Hong and Pak Martua Sitorus, they would tell you that S$ 100,000 is the amount of paid-up capital for their first company, Wilmar Trading Pte Ltd in 1991.
Since then, the Wilmar International Limited (SGX:F34) is established and has matured into one of the largest agricultural-based conglomerates in the world with over 500 manufacturing plants worldwide worth S$ 20.7 Billion as at 16 September 2017. How often do you find someone who is able to turn S$ 100,000 in seed capital to S$ 20.7 Billion in 25 years?
#1: Stock Information
Ticker Symbol: SGX:F34
Market Capitalization: S$ 20.7 Billion (16 September 2017)
Market Price: S$ 3.28 (16 September 2017)
Sector: Consumer Products
#2: The Business
At the core, Wilmar International Ltd (Wilmar) has established an integrated business model that encompasses the entire value chain of the agricultural commodity business. This includes production, processing, merchandising, branding and distribution. All in all, Wilmar derives income from three main business divisions. They include:
Wilmar is among the largest palm oil plantation companies in the world with a total planted area of 241,892 hectares in 2016. In that year, Wilmar has produced 3.8 Million MT of Fresh Fruit Bunches (FFB). Almost 100% of its FFB production is supplied to its own plants where they were refined and processed into oleochemicals, speciality fats and biodiesel products.
Presently, Wilmar is also the largest processor and merchandiser of palm and lauric oil products in the world. Excluding its associates, Wilmar has 28 refineries, 19 oleochemical plants, 16 speciality fat plants, and 13 biodiesel plants with a total annual capacity of 28 million MT, 2 million MT, 2 million MT and 3 million MT respectively. In 2016, Wilmar’s Tropical Oils division has contributed US$ 689.2 Million in pre-tax profits and thus, remains as the largest income contributor to the overall group.
Oilseeds & Grains
Wilmar is the largest oilseed crusher, flour and rice millers in China as it operates 52 oilseed crushing plants, 18 flour mills and 16 rice mills in the nation. Its products are distributed across China, India, Indonesia, Vietnam and several nations in Africa. In 2016, Wilmar’s Oilseeds & Grains division has contributed US$ 251.1 Million in pre-tax profits and thus, is the second largest income contributor to the overall group.
Wilmar is the largest sugar producer in Australia with 8 sugar mills and 2 sugar refineries in that country. In 2016, Wilmar produces 50% of Australia’s raw sugar and 75% of sugar requirements in Australia and New Zealand. In 2016, Wilmar’s Sugar division has contributed US$ 125.3 Million in pre-tax profits. It is the third largest income contributor to the overall group.
#3: Growth Plans
Wilmar is an ever-expanding organization with multiple expansionary and investment projects-in-hand. Here are the key developments for each of Wilmar’s division currently:
As at 30 June 2017, Wilmar has 240,730 hectares of palm oil plantations. 29,140 hectares (12.1%) and 18,661 hectares (7.8%) are immature (below 3 years) and young (4 – 6 years) respectively. Trees of these plantations are expected to grow and mature progressively and thus, bearing more fruits over the next few years.
Oilseeds & Grains
In December 2016, Wilmar has formed a joint venture with Bunge and Quang Dung in Vietnam. The joint venture connects Bunge’s upstream oil crushing capabilities to Wilmar’s downstream oil refining and consumer products business to Quang Dung’s feed milling and marketing activities in the country.
Wilmar has 30.26% interest in Cosumar S.A. in Morocco. In 2016, Cosumar has announced the construction of a world-class sugar refinery in Saudi Arabia. The refinery is expected to be operational in 2019 with a production capacity of 800,000 MT a year. In addition, Wilmar has 27.72% interest in Shree Renuka Sugars Ltd (SRSL) in India. As at 28 July 2017, Wilmar intends to add another US$ 120 Million in investments into SRSL by subscribing 481.8 Million compulsory convertible preference shares (CCPS) of SRSL.
Wilmar has implemented a risk management framework to respond to constant changes in its business environment. The two critical risks identified are changes in agricultural commodity prices and foreign exchange movements. Presently, Wilmar uses forward physical contracts, hedges in foreign exchange markets and derivatives to mitigate the negative impact caused by adverse movements of both commodity prices and foreign exchange movements.
As I write, Wilmar is trading at S$ 3.28 a share. Based on 2016 earnings per share (EPS) of US$ 0.154, its current P/E Ratio works out to be 15.78. It is calculated based on the current exchange rate of S$ 1.35 per US$1 (16 September 2017).
As at 30 June 2017, Wilmar has reported to have US$ 2.382 in net assets a share. Thus, its current P/B Ratio works out to be 1.02. In 2016, Wilmar has paid out S$ 0.065 in dividends per share (EPS). If it maintains DPS at S$ 0.065 in financial year 2017, its expected dividend yields is 1.98% a year.
#6: Investors Relation
For further enquiries on Wilmar’s Investors Relation matters,
#7: Major Shareholders
As at 6 March 2017, the substantial shareholders of Wilmar International Ltd are:
- Archer Daniels Midlands Company: 23.93%
- PPB Group Bhd: 18.55%
(Kuok Brothers Sdn Bhd is a substantial shareholder through its interest in PPB Group Bhd.)
- Longhlin Asia Ltd: 8.15%
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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Ian’s personal capacity. It does not in any way represent those of his employer and other related entities. Ian does not own any companies mentioned.