Wilmar Intl

Wilmar Intl - NAV $3.304, Rolling EPS 0.306, PE 13.721.
Final dividend of 7 cents for FY 2017. Together with Interim dividend of 3 cents. Total dividend is 10 cents. Yield is 3.2% at $3.12 per share.

The recent share buying back by company director of 2.44m share at $3.103 per share & 79300 share at $3.18 per share may likely be a boost of confidence..

I have jeep small lots at $3.12 today..I am buying for the future growth and may be the listing of their China ipo.. dyodd.

Reply to @Sporeshare : Ah.....This is the golden big question! If Wilmar is really pushing for an IPO of their China operations in Shanghai exchange, I think can look at other similar commodity giants that are already listed in Shanghai exchange to see where are they trading now in their price to earnings multiple. That will give us a good gauge what types of multiples we are potentially looking at. Surely, we cannot expect Wilmar to list their China operations at too low a gap from their peer competitors on Shanghai exchange. If that is the case, why still push for IPO listing if the valuation it would fetch is not attractive at all? If want to unlock value by the IPO, might as well unlock it well.

I attached an article from TheEdgeSingapore which an analyst pegs a target price of $4.10 based on an attractive valuation now, strong crushing margins so far in FY18 and the anticipated listing of its China unit. You can read through the article to see the rationale put forth by the analyst. In any case, we are not trying to be precise in forecasting our target price. The analyst puts forth a possible listing of the China unit at up to 23 P/E ratio on the Shanghai exchange. 

Based on good common sense and my previous sharing, Wilmar's share price definitely has all the good catalysts as we can see currently going for it to reach a higher price level. My previous estimated fair price of $3.18 is based on a worst case scenario. Unless we think Wilmar will eventually fail in all accounts of the prospected catalysts in having weaker overall performance this year and anticipated listing of it's China unit falls through, then worst case scenario may pan out. Thus, the downside as I can see on probability terms is low while upside has high probability of happening. 

Therefore, if you ask me, is $4 you quoted likely to reach in future? My answer is even if not reaching $4, I think the probability of the share price rising higher from current level in view of all these potential future catalysts is surely there. How about a $3.60 price in future based on my "anyhow" guess? I think that will be already at least a good perk of 11.5% share price gain if it really happens by this year end. $4.10 will be even more "shiok" with a potential return of 26.9% if it really happens within one year's time based on the analyst's target price in this article by TheEdgeSingapore! I think it is a case of making either more or lesser returns from this bet here on Wilmar. As long as one does not chase at higher price if it should chiong but instead has already accumulated cheap in advance, one should be falling into the case of making more or lesser returns on this bet hopefully within one year's time frame.

https://www.theedgesingapore.com/wilmar-kept-add-valuations-strong-crushing-margins-and-upcoming-listing-china-unit

Wilmar International. The overall feel I have of this large agricultural international group is that it already has extensive and deep degree of reach in it's agricultural and related businesses in terms of many geographical regions they are in (about 50 countries as reported on their website with about 500 manufacturing plants worldwide) and also the entire value chain they are serving from upstream plantation and harvesting to mid stream processing and refining to downstream distribution and sales of their final products to consumers.

On a one decade time frame, Wilmar International has compounded it's revenues at a CAGR of 10.3% which is respectable and not surprising considering how significant this group has grown over the years. It's operating income has compounded at a CAGR of 8.1% over the past decade. It's net income has compounded at a CAGR of 7.7% over the past decade. It's EPS has compounded at a CAGR of 4.1% over the past decade. Again, this looks like a moderate to slow grower over the past decade just slightly better than SATS that we looked at previously in terms of the growth in it's profitability.

If we look at their past 5 years trend for the revenue, operating income, net income and EPS, there was a dip in all these metrics after FY12 onwards which only recovered in their FY17 results near to FY12 levels.

qUOTE : I checked up the palm oil historical prices and indeed it confirmed my thinking that this dip over the past 5 years which only recovered recently was probably correlated to the drop in palm oil price over the past 5 years. Currently, palm oil price has recovered from the lows but still it is now only two-thirds of the last peak price reached in 2012. The big question is whether the palm oil price will continue to recover towards the last peak price reached in 2012 going forward or continue to hold around current price and do a ding-dong in price, sometimes up and sometimes down but no clear up direction for the next few years? This I do not know as I think only insiders of the palm oil industry will know the dynamic factors of global supply and demand affecting palm oil prices. I consider this as outside my circle of competence. But looking at palm oil historical prices, it sure looked quite volatile to me and hard to grasp.{

jeremyowtaip}

As such, the various trend on their returns on assets (ROA), returns on equity (ROE) and returns on invested capital have also dipped over the past 5 years and have almost recovered in the latest set of FY17 results to close to same returns as FY12. However, the various returns are still single digits returns in %. For example in FY17, ROA is now around 3% while ROE is around 7.6%.

 If we stretch further backwards to compare their current returns against one decade ago which the various returns were higher in FY07 of ROA around 6.7% while ROE was around 13.8%, we can clearly see that Wilmar is now not a high return beast as it used to be a decade ago. It seems that it is not easy to attain the same returns as before anymore now that Wilmar has outgrown so much that at it's current size it cannot generate the same returns on assets and shareholder equity as before. Now again, the big question is how will the various returns going forward in future years be like? Will it remain around same level as now or become lower? Size is one thing which makes it increasingly difficult to generate the same level of returns. What if they can grow their revenue and profits further in future years should palm oil prices recover? Maybe there could be a chance to improve their returns though going back to double digits returns likely will be difficult. This would mean they have to increase their current net profits by another approximately 120% at current size of total assets for example to go back to previous decade ago record of ROA. A jump in 120% increase in net profits at current level of USD 1.22 billion for WIlmar next year based on core businesses and not through some non-recurring disposal of assets? One must be joking to ask the dog to jump over the high wall!

The financial leverage of Wilmar has been steady over the years managing their debts level and balance sheet well. Cash flows wise though can be volatile seems to still generate free cash flows at least enough to pay a dividends which has grown over the past decade.

Their CAGR for EPS over the past 5 years has been about 0% even though 10 years CAGR was 4.1%. I will factor in a best case scenario and a worst case scenario in estimating their fare share price value taking into account all the above mentioned details of this comment. If we make a best case scenario of Wilmar continuing to grow it's current EPS at CAGR of 4.1% going forward, then using my method of estimation, their fare share price will be $4.25. However, if we make a worst case scenario of a CAGR of 2% on their EPS going forward for next business cycle (7 years), then their fair share price will be $3.18.

This is mind-blowing! It all depends on the performance of Wilmar going forward. If they can parallel their historical compounded growth rates on their EPS, then it will be a bonus to buy their shares now at cheap cheap share price! However, should they grow at a lower forward CAGR about somewhere half in % terms on their EPS, then we are exactly getting Wilmar now at fair value $3.18 and it will not be cheap now to buy! This really requires an investor's forward opinion on how Wilmar will perform for next 7 years cycle to decide whether to put in his or her stake at current price. Will this be a value buy or value trap? Hmm

Wilmar International has since diversified their commodity businesses over the years into business segments including tropical oils, oilseeds and grains, sugar and biofuels and other investment businesses. This horizontal diversification and vertical integration tapping at all levels of the value chain has allowed Wilmar to grow to it's current humongous size despite being in a general low profit margin agricultural commodity businesses.

I forgot to mention another important piece of bright spot for Wilmar! I read up in it's most recent financial report that they are considering looking at an IPO listing of their China rice, flour and related consumer products operations in China.

http://sbr.com.sg/agribusiness/news/wilmar-eyes-china-expansion

 But things are still in the early stage of assessment. If that were to happen, imagine the craze of investors rushing in for this potential spin-off of their China businesses which will unlock value for shareholders. Then, buying at current share price is now cheap if we factor in this potential unlocking of value from such a future proposition which will increase their profits and returns by some substantial jump if that were to happen some time down the road. It may happen as early as 2019 based on a write-up by Singapore Business Review. Hmm....I am now starting to get somewhat interested after knowing this.

Some info on Shree Renuka Sugars I found out. It is the largest raw sugar producer in India and Brazil. As what the others have pointed out, the management was too aggressive in their overseas expansion bet in South America which didn't go well chalking up huge debts. This is because after year 2012, the sugar prices dropped from their peak reached and also correlated to Shree Renuka's operating losses from 2013 to now as sugar prices remain lower and now only recovered to two-third of the peak price reached in 2012.

Wilmar has this chance to acquire a controlling stake in Shree Renuka Sugars because the latter chalked up so much debts from their aggressive expansion to South America market which didn't pan out well. Thus, during this current debt restructuring exercise, Wilmar can take this opportunity to acquire a controlling stake in the equity of India and Brazil largest raw sugar producer Shree Renuka Sugars.

quote :I will need to examine the financial strength of Wilmar whether they can take on this acquisition without risking themselves too much. But, the offer to acquire a controlling stake in Shree Renuka Sugars by itself sounds to be a wonderful move. If sugar prices should continue to recover to previous peaks in 2012 and earlier, Shree Renuka Sugars may be able to return to better profitability again. The return on invested capital for Shree Renuka Sugars before they went downhill in 2013 are still good. If Wilmar after acquiring Shree Renuka Sugars can turnaround this largest sugar producer in India and Brazil successfully, it will be very good for Wilmar to further expand their sugar business significantly.

PS: Shall investigate whether Wilmar is strong enough to take on this acquisition without stressing their balance sheet too much. Get back to you again.

I did an estimation on the required amount for Wilmar to make the acquisition of shares in Shree Renuka Sugars based on regulations of Securities and Exchange Board of India after Wilmar converted it's convertible preference shares to common equity shares and triggered the regulations of the exchange to make an offer to acquire up to 26% of the emerging share capital of Shree Renuka Sugars. The cash outlay needed to acquire up to 26% of the emerging share capital of Shree Renuka Sugars is approximately USD 124 million. Wilmar has about USD 2.96 billion in cash and equivalents plus other bank deposits. It's current ratio stands at around 1.15 based on FY17 financial report. This acquisition requires very small cash outlay for Wilmar as compared to the cash and bank deposits it now has. However, after the acquisition of a controlling stake in Shree Renuka Sugars has been completed, I am not sure how much remaining debts of Shree Renuka Sugars Wilmar will carry as some of the debts owed to the lenders have been converted to equity in Shree Renuka Sugars.

I checked up Shree Renuka Sugars balance sheet as at Sep 17. They carried a total of about USD 1 billion worth of total liabilties on their balance sheet. With some of the borrowings of Shree Renuka Sugars converted to equity, the total liabilities should be lesser than this figure. Thus, with Wilmar's existing USD 2.96 billion in cash and equivalents plus bank deposits and if we consider Wilmar's current assets of total about USD 22.6 billion, Wilmar definitely has much more than enough resources to cover the liabilities of Shree Renuka Sugars even after Wilmar completes this acquisition of a controlling stake in it. There is no concern at all in acquiring a controlling stake in Shree Renuka Sugars for Wilmar. Instead, Wilmar would have gotten this India and Brazil largest raw sugar producer under it's wings.(jeremyowtaip)

But having said that, those few stocks we discussed about like Wilmar and Thai Beverage are good stocks to hold for the longer term as there are future potential catalysts in them. The potential listing of China operations for Wilmar which will unlock value for shareholders and may re-rate share price higher. The future long term contributions to earnings and returns from the new acquisitions for Thai Beverage will outpace the cost of their initial investment. The market position of Thai Beverage has strengthened as a leader in this Southeast Asia region with these acquisitions. The fair share price of Thai Beverage I cannot determine at the moment. But, in future the direction of the share price can only go one way which is up as the new acquisitions start to increase the overall profitability and cash flows further while the debts get slowly reduced over time.

For SATS, it is a steady slow grower. Just need a bear market to grab it cheap at fair value or lower than fair value and see the price will bounce back and trade higher than fair value due to so many favourables surrounding it which may continue for a very long number of years ahead.

SATS

SATS - Sold down from 5.70 to hit the low of $4.98 today and closed at $5.00. Seems rather bearish! Volume is also high. NAV $1.425. Eps 23.5 cents , p/b 3.6x. PE 22x . TA wise , looks bearish! Breaking down of $5.00 may test $4.94 then $4.90 with extension to $4.65. 

Let us take a look at the financial results numbers for past 5 years:

Hi Sporeshare@jeremyowtaip, SATS was an investment idea that I almost wanted to get in last year when it was trading around $4.60+ region. However, wonder if I was unlucky or what, the share price shortly after I had finished my due diligence started to move higher as though it disliked me from buying it. Thus, I held back and did not chase it at higher price. I was in fact hoping to get it even lower at $4.50 back then but since the price did not go lower but instead went higher, I gave up and moved on to other stock ideas.

Back then I took an interest in SATS after hearing my father talked about how my uncle entered this stock some years back when it was still trading about $1 plus to $2 plus region. My uncle held it until now and it is now at $5+ when he at least double to triple his initial capital. Well, this is not something to scream about over the past decade as there were even stocks which performed much better than SATS in their share price growth. But, it is at least better than punting a wrong penny stock and made losses along the way over the past decade.

Thus, I think my uncle who has very limited investment knowledge also knew how to exercise his common sense to pick reasonably good stocks (though may not be one of the best performing stock) at a cheap price and keep holding it until now to reap such a return on his capital turning in a 2 to 2.5 bagger over the past decade. That equates to a similar performance to ETFs or low cost fund which track S&P500 index that also became a 2.5 bagger over the past decade. This is still a somewhat decent showing of SATS share price performance over the past decade.

The revenues of SATS have compounded over the past 9 years at compounded annual growth rate (CAGR) of 6.78%. The operating income (EBIT) has compounded over the past 9 years at CAGR of 3.2%. The net income has compounded over the past 9 years at CAGR of 3.77%. The EPS has compounded over the past 9 years at CAGR of 3.6%.

The operating cash flows has compounded over the past 9 years at CAGR of 7.97%. The capital expenditure has compounded over the past 9 years at CAGR of 21.73%. The free cash flows has compounded over the past 9 years at CAGR of 5.21%. The dividends per share has grown from 10 cents 9 years ago to now 16 cents.

The returns on assets, returns on equity and returns on invested capital have took a retreat over the past 9 years but have recovered again in the recent few years back to the same levels as 9 years ago.

If we look at the past 9 years performance of SATS in terms of it's profitability in compounded growths in revenues, operating income, net income and EPS, all the CAGRs of the respective metrics point towards one conclusion. This is a steady but slow growth company. Even though it maybe making some progress in it's topline growth, it's bottom line did not follow the same growth rate and instead only turn out a low single digit compounded growth rate.

If we look at the cash flows trend, this is definitely a cash generating machine albeit not a high growth rate in generating cash. In fact, it's compounded growth in capital expenditure is much higher than compounded growth in operating cash flows and free cash flows. It has invested increasingly a lot more money in capital expenditures in order to generate cash inflows. However, if we look at the ratio of free cash flows to capital expenditures over the past 9 years, the amount of free cash flows generated in any one single year was always about twice or more than twice the amount of capital expenditure. This company was generating hell lots of free cash flows even if it increasingly need to spend more in capital expenditure. No wonder the share price has performed reasonably well over the past 9 years even though not something super fantastic to scream about.

It's current 9M17-18 financial results seems to picture a flat results y-o-y with almost everything from revenue, operating income, net income, EPS, operating cash flows being flattish. Maybe that could be partly the concern why it's share price did not went any much higher but instead dropped from it's peak of $5.85 to now $5.00 after the recent 9M results were announced.

Let's look finally at the valuation with this updated set of 9M17-18 results. If we assume that it's EPS will continue to grow at same CAGR of 3.6% and this could be a reasonable CAGR given that SATS really is not a high growth company anymore. In it's recent financial reports, even though they mentioned some possible areas of growth they are looking at and investing in, it does not seem to really boost their growth currently by any large magnitude. Well, at current large revenue level of $1.73 billion, I guess it is not easy for SATS to grow at any meaningful high double digit growth rates anymore going forward. Maybe they could turn in any single year of superb growth. But to sustain at such high double digit growth rates over the longer term may not be an easy feat for them at their current large size and also in their competitive environment. The management also acknowledges that their operating business environment is challenging and meets with cost pressure.

Using my method of estimation, at current share price of $5, the market is according a CAGR of 6.4% over the next business cycle (7 years forward) for the EPS of SATS. If we assume SATS will follow it's historical CAGR of 3.6% for it's EPS, then a fair value for it's share price will be around $3.69.

However, there could be a twist in this. Over recent two years, the EPS has grown faster than over previous period. If SATS can indeed produce a better CAGR on it's EPS perhaps around 5%, then using my method of estimation again, it's fair share price will be $4.35.

Thus, there are two possible fair values now for your consideration.
The more conservative fair value is around $3.69. The more optimistic fair value is around $4.35. In any case, this means that the share price of SATS is currently overvalued and has possible room to fall to it's fair value. This fall in share price could be likely should the full year FY17-18 results ending in Mar 18 remains flattish or see a marginal decrease which is not impossible since the 9M17-18 results are already flattish. Let's see whether SATS FY17-18 results to be announced in another about two months time will surprise on the upside or confirm my thinking that it could be a flattish year for them in their performance.

theintelligentinvestor

Reply to @jeremyowtaip : Great analysis! I have similar view that the topline is growing faster than the bottom line, like most instances, is because the business needs higher Capex to have incremental growth. I prefer the lower capex to grow type of businesses, but they are hard to find and also not cheap.

But having said that, I think overall the earnings power is still there, they have a nice moat around their business, and generating good earnings and cash flow. A 3.6% growth will mean doubling the business every 20 years. For me I don’t have problem with low growth businesses, I have some stocks that are also in the same moderate range of 3-5%. What is left is the price, at PE 21, it is on the overvalued side. But if I have bought this like your uncle at $2, I will likely keep holding it, as fundamentally it is still the same, only thing has changed is the price.

Company bought back share:

SATS did a series of share buy backs recently from mid-Feb to now. I noticed their prices they bought ranged from $4.99 to $5.20. The funny thing and irony is that you posted your comment just after they announced up till their latest share buy backs in this recent series of share buy backs. The management think their share price is cheap to have done share buy backs at current prices while we were discussing that the current share price is overvalued. I will still stand by my view that their share price is currently overvalued. What an irony here! Haha!

 Ya loh! Not sure why they buy back share ! May be to support the share price from going lower ..

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theintelligentinvestor

Reply to @jeremyowtaip : I wish companies here would explain the rational when they do share buyback. At PB of 4 and PE of 21, buying back doesn’t looked to be adding value to shareholders.

Reply to @jeremyowtaip : TQ for your detail analysis ! You are really dive deep into nitty gritty items . Like your style of analyzing the company data and computing the fair value . I have worked out the fair value using discounted EPS ,EPS CAGR 9.17%,which Is about $2.23( has even factored additional discount ) . The fair value using Ops cash flow is about $3.52 , Cashflow growth rate of 3.39%. The current price of $5.00 is still expensive.IthinkHave to wait for price to correct lower .
jeremyowtaip

Reply to @theintelligentinvestor : @clim @Sporeshare 

I have a hunch the share buy backs could be for some share restriction plan which is similar to employee share option to reward certain employees for their contribution to the company. That's why the number of outstanding shares has grown gradually through the past decade even with share buy backs because the shares were not cancelled and instead went towards their share restriction plan to reward their employees. If share buy backs done during cheap or fair share prices, then still ok. But if done on overvalued prices, I think this will not be benefitting for shareholders even if it benefits their employees of the company. Thus, such employee share options or any form of share options for employees must be done in a sensible manner. Or else, it will like TII said either does not value add or worse erode shareholder value over time.. It seems that SATS is not a good candidate to do shorting on based on a few factors I mentioned. The various favourable factors I observed are good management, low leverage, quality cash flows and strong liquidity, favourable secular industry favouring long term growth even if growth is slow, strong institutional backing in TH
have a large % deemed interest etc. There are many more favourables going for it. It's share price may still trade with some volatility but may not sustain a downtrend too much.Tough case for it's share price to drop also with this additional joint venture news now. But if Mr Bear comes, then it will scare the sxxx out of investors and dampen their mood to trigger a sell down in a bear market to possibly reach it's fair price. 

Best World

Update - 26 Mar 2018

Uptrend mode still intact!
Likely to move up to re-conquer the recent high of $1.90. crossing over with ease + good volume that may continue to drive the price higher towards $2.00 and above.
Dyodd.

Last Thursday (14th Mar)had a very decisively breaking out moment and drive the price to hit the all time high of $1.85. Couple with Super high volume , this is rather bullish .
Looks like high chance of hitting $2.00 soon !

Best World - I think The Best is yet to be..
Judging from the chart patterns appeared on the chart, a nice Bull run is still going strong.

The momentum may drive the price to clear the All-Time-High of $1.62 and fly higher towards $1.70 with extension to $1.80 /$2.00.

Not a call to buy or sell.
dyodd.

Creative

Creative - One of the hot stock that has been doing very well due to the announcement of a new products :

Creative's Super X-Fi™ Headphone Holography Wins Best of CES Award 2018

Looking at the chart, it has ramp up from the low of $1.10 to a high of $5.23 within the span of 6 days.

Fantastic! 

No words can describe the amazing performance of almost 5x price value appreciation.. 

Share holder would be very please with this price appreciation.

I think punter would be even more happier as they have managed to profit from the price upwards move. 

Are we really missing something here why the price has gone up in a super fast speed!

TA wise, it has a nice breaking out moment. Looks bullish! Likely to continue to trend higher.
Always ensure to have your Stop Loss price in place . 

Is this going to be a BULL trap !

I think the price is purely driven by news.. Do trade with extra care!

not a call to buy or sell.

dyodd.

DBS

DBS - Looks like a bullish pin bar has appeared on the chart Last Friday! Bull seems to be able to fight back and edge slightly higher to close above ($28.41)the day low of 28.18. This is quite bullish!

Looks like it may move up to re-test 29.00 then 29.24. breaking out of 29.24 with ease that may likely see it rises towards 29.70 and above. Not a call to buy or sell. dyodd.

Sheng Siong

Sheng Siong - Local supermarket has been generally doing well as reflected on their Financial results with consistent rising in Net Income & cash flow for the past five years:

Company has a net cash position of about 4.9 cents per share.
I think zero debts and giving out a dividend payout ratio of 71% @ 3.3 cents for FY 2017. Yield is about 3.55%.

EPS is 4.64 cents. PE of 21.5 at 93 cents.
I think average PE is about 25x should be achievable at $1.16.

I think The fair value is about $1.10 - $1.20. At current price of 93 cents, upwards potential is about 25% to hit the TP of $1.16.

Not a call to buy or sell.
dyodd