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RHB raises Wilmar’s TP to $4.40 on better ESG score

Khairani Afifi Noordin
·2-min read

Wilmar is one of the companies that would be well-poised to comply with the European Union Deforestation Regulation.

Analysts at RHB Bank Singapore have maintained “buy” on Wilmar International F34 with a new target price of $4.40 after raising its environmental, social and governance (ESG) score to 3.3 from 3.1 previously.

The analysts believe Wilmar is one of the companies that would be well-poised to comply with the European Union Deforestation Regulation (EUDR).

While there are a myriad of problems and issues in complying with the EUDR guidelines based on current regulations, RHB believes there are also numerous solutions. The Malaysian and Indonesian governments working together with the EU to find solutions is a step in the right direction, the analysts say.

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“At the end of the day, if the EU fails to help producing countries like Indonesia and Malaysia in complying with the EUDR, it will push producers to export more of their commodities to countries with weaker environmental regulations, thereby shifting the problem to other regions,” they add.

A short-term solution would be to ensure that whatever is sold to the EU is produced in segregated mills and refineries and traceable to plantation. This could mean redirecting smallholder crops that are not traceable to other mills to ensure there is no mixing of crops in each plant, RHB says.

As smallholders manage 40% of plantation areas in Indonesia and Malaysia, the sector will only progress if they are taken care of and well updated with the changes in laws and regulations, the analysts point out. As such, continuous engagement with smallholders is essential to educate them on the importance of establishing a sustainable business, while the necessary tools must be given to the smallholders to help them to achieve these goals.

“We believe the sector in general is moving in the right direction in terms of ESG standards, with more disclosure and targets being set. However, we note that there are some outliers which have yet to make any improvements to ESG disclosures as well as ESG targets,” they add.

Wilmar’s ESG rating is raised on the back of strengthening environmental credentials, which saw improved traceability; reduced water intensity; and better certification progress; as well as better governance traits in the form of increased board independence and better gender inclusivity.

Meanwhile, RHB made no changes to its ESG ratings for Bumitama Agri P8z, Golden Agri-Resources E5h and First Resources Eb5 at 2.6, 2.7 and 2.5 respectively.

As at 5.16pm, shares in Wilmar are trading 4 cents higher or 1.09% up at $3.68.

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