Analysis on Wilmar

I realized that I've yet to seriously share a full post analysis on Wilmar on my blog yet. I've shared on numerous occasions that Wilmar is a company that I will like to build my positions on so long the price provides me with an attractive valuation.

Honestly speaking, as far as I'm into Wilmar, the price had all along provided me with the comfort to add onto Wilmar but sadly, I do not have to capability to consistently fire my bullets without any war chest.

Some might wonder.. Why Wilmar?
Wilmar doesn't gives attractive dividend, do they?
The answer is. No.
A big no especially to income investors where they look to receive tasty dividends from Wilmar.

Or maybe a better way to say so is, not at this moment.

Investors of Wilmar would have known that an analysis on Wilmar is not as easy as it seems due to the extensive broad range of service that they are providing. Further more, Wilmar is cyclical business which makes the whole equation look more draggy.

For cyclical business like Wilmar, indicators we are often seeing such as P/E ratio only provides us with the outlook of the current situation and not how it is exactly priced as compared to other periods, as their earnings are fluctuating to the cycles.

When cyclical stocks are in the thriving part, their earnings will soar, which will cause the P/E to look smaller. Having that said, the EPS will also be impacted in the cycle. Assuming that they are having a fixed dividend payout ratio, investors may see a sharp decrease in earnings along with the dividend when these cyclical counters are in their downturn period.

This will naturally cause a sell-down as investors will start to lock in their profit, which subsequently the price will be matched to it's earning.

So a better indicator to use to gauge on how is much Wilmar worth will be it's P/B ratio. In this case, we will have to take a look at their NAV.

During the upper cycle of a cyclical stock, it is normal to see them trading at multiple times their book value. For example, Wilmar in 2010.

Wilmar's FY2010 Financial Report - Page 17

Wilmar at the end of FY2010 (31/12/2010), Wilmar is trading at S$5.63.

Taking a quick look back at the USD rates on 31/12/2010, we have USD-SGD at 1.2813

This will mean that Wilmar is trading at USD 4.39 with respect to it's NAV at USD 1.85, representing a P/B ratio of 2.37.

Wilmar's FY2016 Financial Report - Page 13

Base on their latest AR2016, Wilmar's NAV stand at USD 2.28.

With the USD rate (31/12/16) at 1.44, we will derive with S$3.28 per share.
As the NAV is priced in USD, using the rate today we'll be looking at a different value.
Hence, it's always good to use the same date to compute it's NAV.

Yes, that is right. You did not see that wrongly.
Wilmar has grown and became a more valuable company despite the down cycle and it's book value had grown by 23% in this 8 years when the price is beaten down to $3 from $6.

The lowest point during GFC, Wilmar was traded for $1.95 on 24 Oct 2008.
Back then, Wilmar's NAV stand at USD 1.50 (SGD-USD = 1.47). With that, we will derive a P/B ratio of 0.88. Today's price of 3.08 over latest NAV of 3.28, this comes up to a P/B of 0.93, which isn’t too far off the value we’re buying into during GFC back then

And even at this price, it does represent a small bit of margin of safety.


The shiny thing here I like about Wilmar is the direction the company is heading to, to make Wilmar a more valuable company that it is by placing emphasis on Growth and consistently looking for ways to grow the company.

Wilmar had been rapidly expanding, venturing aboard, acquiring businesses and even carrying new products. Having done so, this will provides the company will a greater moat in the future as well as creating more sources of revenue for the company.

BUT! It's important to remember that when they're fueling such activities, CAPEX will be swelling and it will takes some time for the profit to be seen. When CAPEX eventually tapers down, this is when the company will have a greater FCF and investors could be looking at a greater dividend payout.

Hence, investors of Wilmar will have remember why they are in Wilmar. 

Looking at a P/B ratio of 2 in the upper cycle base on the NAV we see above, we will easily get $6.56 and a more conservative price of $4.92 for 1.5x book value based on the latest NAV ending 2016. But, this will only happen when the cycle goes back north.

I believe that even paying a fair price of 1.2x book value for a company with such impressive management is decent and this will comes to a price of 3.93. At today's price, it even provided me with a margin of safety! Delicious.

Even ADM (Archers Daniel Midland) was paying $3.37 a share in 2016! (Link below)

Buying a good business at fair price VS buying a fair business at good price?

However, being an extremely diversified business, losses incurred will easily wipe out profits, causing performance to be restricted. The other side to this coin is that, the performance will be more stable, and in the most favorable situation where more businesses are performing, you will be see the earnings rocket.

Yes, they're a major super-power in Palm Oil, but today, Wilmar is no longer just about Palm Oil, but many other businesses as well.

Some catalyst that we might be looking at in the coming days will be the upcoming listing onto Shanghai Stock Exchange in Mid-2019. (Link below)
I believe this event will create more funds for Wilmar to continue it's growth and expansion.

In conclusion: 
1. We have to know why we are investing in Wilmar - For it's growth and value
2. For that reason above, we will require patience
3. Some catalyst that will bring in some sparks will be the recovery of sector as CAPEX tapers off
4. Very diversified business provides us with a more stable performance but will also limits earnings due to losses incurred in other businesses, the most desirable outcome will be for the whole sector to thrive
5. We're putting our money with Wilmar for our dollars to grow, and not to rent out houses to collect rental. (Look at Berskhire which does not gives out dividend and reinvesting their dollars)
6. Despite the down cycle, Wilmar is creating value and is in the vision to create more by acquisition, expansion and venturing aboard.



Read: Wilmar's Technical Analysis

Wilmar's FY2017 result (ending 31/12/17) will be released tomorrow (22/02/18) after trading hours.
News on ADM's increase stake in Wilmar can be found here - Reuters
News on Wilmar's IPO in China can be found here - Nikkei  
Wilmar Annual Report 2006-2016 can be found here.

Wilmar's Technical Analysis

It's Sunday again. Time truly flies. And on this boring Sunday today, I've decided to do another Technical Analysis post on another company that I own - Wilmar. Once again, please pardon me for the poorly done TA.

Pretty much similar to Singtel, Wilmar's share took a beating and fell from the 3.4 range in November to the recent days where it broke it's 3.00 mark.

Wilmar's chart today display a relatively bearish trend.

You can plot your own graph on InvestingNote

The price for Wilmar gapped down on Friday when the market open and Wilmar started trading at 2.97. Shortly after this level of support is tested, the price rebounded back to the 2.99-3.00 range, before finally closing at 3.00.

We can see a small pinch in Bollinger Band somewhere around late Jan. This action suggest that the moving average is constricted and pretty much. volatility increased after the pinch. The price on Friday has breached the lower band slightly which is indicating that Wilmar is entering the over-sold region.

Taking a look at the next indicators of RSI, we obtain a value of 28.80 which suggest that Wilmar is oversold. The price today has fell below it's EMA, 20D MA and 50D MA which signals that Wilmar is currently in a downtrend.

The negative MACD value we can see also tells us that the short term moving average is below the long term moving average. As per pointed above, this signals a downward momentum and our dear Bear is in action.


While looking at the MACD graph below (most bottom), we can also see that the MACD line (Blue) is away and below from the Signal Line (Red), signalling a Bearish market. At this point, there is no divergence seen as both MACD and Wilmar's share price is moving downwards, this will also tell us that this bear attack might continue.

While MFI does not suggest that Wilmar today is over-sold, but it is much closer to that region than it is to the over-bought region at 36.73. If we get the formula in, we will be able to obtain the MFR base on MSI = 100 - 100/(1 + MFR). Work it backwards, we will obtain a value lesser than zero.

This will suggest to me that the money flowing out is greater than the money that is coming into it. The situation here is much better than Singtel's situation where greater amount of money is flowing out of it.

Using the Fibonacci Retracement certain potential areas of support could be seen at 2.86, 2.79, 2.74 should it once again break the support at 2.97. Likewise, the next area of resistance can be identified at 3.06, 3.14, 3.19 and 3.24. 

At today's price, I can see an attractive value and opportunity presenting for myself to buy more shares from Wilmar. However, as I've promised to strap my fingers to myself, I should now learn to resist onto the temptations!

Also, at this current point where the downtrend might continues, it is better to stay at the side while monitoring the situation.

Wilmar's 1 year chart from Google

Do remember that, TA is all about the probability and not certainty.
Most importantly, the high can get higher and the low can get lower. Once again, please only take this poorly done TA as a pinch of salt.


Oh yes.

Technical indicators and charts aside, the price we see today is below it's NAV and it's priced below 11x their earnings. Concerns about the major market for palm oil, Europe to phase out palm oil in biofuels also posted a threat to Wilmar recently. Aside the European, the 2 other biggest market for palm oil are China, India and not forgetting the other markets like Africa and Middle-East market.

However, Wilmar's investor should also remember that their operation does not only consist of this segment and it compasses a wide breath of operations.

Factoring the uncertainty and pessimism in, the price looks rather appetizing. On a side note, the price we're paying today for the wonderful management in Wilmar does provides some comfort.

We should also remember that Wilmar had conducted share-buy back in 2015 at 3.03 when they felt that the share is currently undervalued. Considering that it had fallen below the price they paid during the last buy back, history might repeats itself and should that happen again, we will get to see some tale from this action.

Once again, I must remind you that, this counter we see here, is a not an ordinary counter. We must also be reminded that by investing in Wilmar, we must be able to see the value and upcoming growth prospect.

Another catalyst in the upcoming days that we can look upon aside the delicious growth prospects of Wilmar will be the listing of it's China unit and list on the Shanghai Stock Exchange in the second half of 2019.

I continue to love the confidence and optimism Mr Kuok has on Wilmar and this brings in another layer of confidence for myself as a pico investor of Wilmar.


Read: Analysis on Wilmar

ST news on Wilmar's share buy-back in 2015 can be found here.
CNA article on EU's Palm Oil Ban can be found here.
Nikkei Asian Review article on Wilmar's listing of China unit can be found here.

Please don't forget about the disclaimer!

All information published on this site is only meant for general information purpose. No warranties should be carried out on the action that is taken based on information found in this blog and no liabilities will be undertaken by the owner for any losses/damages incurred from the use of this information.

Portfolio Update - ComfortDelGro & Wilmar

Extremely grateful to wise seniors for providing me with advises and insights along the way, as well as to Miss Niao for the feature! Appreciate it very much.

Quick update - Recently, over the past week. I've utilized a portion of my war chest to initiate a position in Wilmar & ComfortDelGro.

ComfortDelGro
I've bought 200 shares of ComfortDelGro on their first day of XD, 17/08/17 at $2.17. Prior to XD they're trading at 2.24 and they've fallen below the price they've giving out their dividends.
CDG has been on a bear mode for months and have been fighting the war with Grab & Uber.

ComfortDelGro operates through 7 segments - Taxi Business, Public Transport Services, Bus stations, Automotive Engineering Services, Inspection & Testing Services, Car Rental & Leasing and Driving Centers.

Recently, CDG has released their FY2017 Q2 results, by which they've reported a decline in revenue which is caused by the decrease in revenue and more than half is contributed by the unfavorable currency translation and the remaining from 5 of their operating segments.

Taxis has been a very significant contributor to ComfortDelGro's business and revenue for taxi business has dropped by 10.7%. The damage is however slightly mitigated by the Public Transport Services and Driving Center business.

At $2.17, I feel that they're decently priced at about 15x their earnings. I'm also impressed by their ability in maintaining themselves in this demanding environment, fending themselves from the disruptive technologies. Knowing that, as well as being a regular customer of CDG in their public transport segment, I'm happy to initiate a position with Comfort. I'll be looking forward to their opening of DTL3 on 21 Oct later this year. In an event whereby their share price were to continue dipping, I will be more than happy to accumulate more of CDG's share.

After the great correction of October 1987, the end of the world and the end of the banking system were widely predicted.
Peter Lynch 

CDG's Q2 financial can be found here.

Wilmar
After queuing for several days, on 18/08/17, I've finally gotten 300 shares of Wilmar at $3.10. Similarly, Wilmar has released their 2Q2017 report recently.

Wilmar's business activities includes oil palm cultivation, oilseed crushing, edible oils refining, sugar milling and refining, specialty fats, oleochemical, biodiesel and fertiliser manufacturing, consumer pack edible oils processing and merchandising, soy protein manufacturing, rice and flour milling, and grain merchandising.

That's a very extensive range of services that they're providing.

In the report, they've reported a net profit of US37.3 million, improvements driven by recovery of Oilseeds division. The earnings is however affected by the losses incurred by the sugar division. Healthy balance sheet can be seen with total assets at US 37.33 bilion.

NAV of Wilmar at US 238.2 cents (1 USD = 1.3662 SGD), Wilmar's NAV is standing at S$3.254.
As such, I'm paying about 5% discount to the NAV at my entry price of $3.10. This provides me with a small margin of safety.

Wilmar has been under my watch-list for awhile and noticing them falling sharply below their 50D and 200D MA sharply after their release of results, I believe that there is too much pessimism factored in. It's also good to note that there is some support below the 3.10 level.

I believe that Wilmar will be performing well in the future and by any chance that it continues to fall, or should that support be broken, I will be happy to accumulate more shares of Wilmar at a lower price.
It's also good to note that the CEO/Chairman is very optimistic about their growth prospect.

 Mr. Kuok Khoon Hong, Chairman and CEO, said,

“We expect Tropical Oils to perform better in 2H2017 on the back of improvements in production yields and better margins from downstream operations. Oilseeds crush margins are expected to remain positive for the rest of the year and Consumer Products will improve as it enters its seasonal peak period. However, Sugar will continue to

be affected by the volatility in sugar prices. 

“While the Group may face short term challenges, we remain very optimistic about the tremendous growth prospects of our various businesses and will continue with our expansion plans, especially in China, India and Indonesia.”

Wilmar's Financial Statement can be found here, and news release here.