Wilmar International: Strategic Moves in Indian FMCG Market

Wilmar International has been in the spotlight following its announcement regarding its wholly-owned subsidiary, Lence Pte. Ltd. The subsidiary entered into an agreement with Adani Commodities LLP (ACL) for an option to acquire up to 31.06% of Adani Wilmar Limited (AWL). This move is expected to solidify Wilmar’s position in the Indian FMCG market.

Key Agreement Details

• The call and put options are exercisable after 12 months and subject to compliance with legal requirements.
• Both parties will evaluate alternative options to expedite the sale and purchase process, contingent on AWL achieving compliance with the Minimum Public Shareholding (MPS) requirement.
• The transaction is subject to customary conditions precedent, and ACL reserves the right to terminate the agreement.
• The parties aim to rebrand AWL before or upon the transaction’s completion.
• Existing shareholder agreements will be terminated post-transaction.

Rationale Behind the Transaction

• AWL is India’s largest edible oils and food FMCG company, with a robust distribution network of over 10,000 distributors and 0.72 million retail outlets.
• India, with its vast population of 1.42 billion and a growing GDP of 7%, offers immense growth potential.
• AWL has a dominant position in the Indian FMCG market, offering a range of staple foods and leveraging Wilmar’s global network.
• AWL’s brand “Fortune” enjoys strong consumer recognition in India, positioning it to benefit from increasing consumer wealth.
• AWL exports commodities like rice, castor oil, and oleochemicals to over 30 countries, enhancing Wilmar’s global trade flows.

Financial Implications

The acquisition would result in AWL becoming a subsidiary of Wilmar, funded through internal resources and bank borrowings. A potential gain of approximately US\$1.48 billion and a goodwill reduction of US\$1.12 billion is anticipated. Wilmar International currently trades at 11.5x forward PE and 0.7x PB, with a dividend yield of 5.5%. The consensus target price stands at \$3.27, representing a 5.8% upside. Lim & Tan Securities recommends a HOLD position for Wilmar International due to the limited upside potential.

LHN Ltd: Resilient Performance Amidst Challenges

LHN Ltd has successfully navigated a challenging FY2024, achieving robust growth despite inflation, rising interest rates, and geopolitical tensions. The Group reported a 29.2% increase in revenue from continuing operations, reaching S\$121.0 million, and a net profit after tax of S\$47.9 million.

Key Highlights

• Earnings per share stood at 11.48 Singapore cents, while net asset value per share was 60.77 Singapore cents.
• A total dividend of 3.0 Singapore cents per share was declared, maintaining a payout ratio of 30%.
• The Group’s Space Optimisation Business contributed 68.8% to total revenue, with a remarkable 37.7% year-on-year growth driven by strong demand for co-living spaces in Singapore.
• The residential co-living segment, branded as “Coliwoo,” saw an 85.5% revenue increase to S\$52.4 million, supported by a 97.5% occupancy rate and expansion of capacity.
• The Group completed its inaugural food factory development project at 55 Tuas South Avenue, adding 49 factory units to its portfolio.

Future Outlook

Looking ahead, the Federal Reserve’s rate-cutting cycle and easing mortgage rates in Singapore are expected to lower financing costs and potentially boost property demand. LHN is actively exploring new development opportunities to expand its business pipeline. At 51 cents, the company boasts a market capitalization of \$213 million, with a forward PE of 5-6x and a price-to-book ratio of 0.8x. The sustained dividend yield of 5.9% underscores its financial stability. The consensus target price of 56 cents presents a potential 10% capital return. Lim & Tan Securities recommends a BUY position on LHN Ltd.

Macro Market News Impacting Markets

Chinese authorities continue to grapple with the prolonged property debt crisis. Developers like China Vanke face mounting liquidity challenges, with concerns over default risks rising. Meanwhile, Hong Kong’s real estate sector is also under pressure, with companies like New World Development seeking to delay loan maturities.

Market Implications

• China’s fiscal stimulus measures are falling short, keeping the country in a deflationary environment.
• Global demand for commodities like oil and copper remains weak, while geopolitical tensions bolster gold’s appeal.
• BCA Research advises staying long on gold, underweighting oil and industrial metals, and being cautious on emerging market assets.