Wilmar's YKA Shenzhen listing to raise visibility of China business

SINGAPORE (July 16): The Arawana brand of cooking oil in China -- with its large Chinese characters “Jin Long Yu” in gold and distinctive image of the popular tropical aquarium fish – is well known and trusted by housewives from Shanghai to Shenzhen.

But few of them may realise that this brand belongs to Yihai Kerry Arawana Holdings (YKA), a 99.99% owned subsidiary of Singapore-listed Wilmar International.

That may now change given Wilmar’s decision to list YKA on the Shenzhen Stock Exchange which is expected to take place in 4Q19.

Last week, YKA announced its application to list on the Shenzhen Stock Exchange has been accepted by the China Securities Regulatory Commission (CSRC) and is currently awaiting approval by the regulator.

The plan is to list about 10% of YKA shares on the Shenzhen Stock Exchange with no secondary offering, subject to CSRC’s approval of the listing application.

The IPO proceeds will be used to fund YKA’s capital expenditure which is expected to be mainly in China.

See: Wilmar says listing of China ops accepted by regulator but waiting for approval

Indeed, YKA is one of China’s largest agribusiness and food processing companies.

In FY18, YKA posted net profit of US$0.8 billion ($1.1 billion), making up 60% of Wilmar’s FY18 core net profit of US$1.3 billion. The subsidiary also contributed 50% to Yihai Kerry’s core net profit of US$120 million in 1Q19 which was largely in line with analyst forecasts.

Arawana was the official cooking oil for the 2008 Beijing Olympics and has been the leading edible oil brand in China since the 1990s, garnering 45% share of the consumer pack edible oils market.

Apart from Arawana, other popular household brands under YKA include Olivoila, Orchid, Wonder Farm and Golden Delicious with a plethora of products spanning rice, flour, fine dried noodles, rice noodles, soymilk, special grains and oils for the catering industry as well as oleochemicals.

According to Wilmar, YKA has invested more than RMB 30 billion ($5.9 billion) in China so far, and has 27,000 employees across more than 70 production bases amongst a total of 26 provinces, autonomous regions and municipalities.

See: Strong margins and China listing to support Wilmar’s share price for a decent 1Q, say analysts

In a recent report, DBS Group Research lead analyst William Simadiputra says the listing will improve Wilmar’s market visibility and awareness in the China market, besides boosting growth in its China operations.

DBS is maintaining its “buy” call on Wilmar, with a target price of $3.86 but Simadiputra says the proposed listing should provide upside risk to the research house’s target price as he has not factored in the listing in its current valuation methodology.

“YKA’s 1Q19 net profit of US$120 million was largely in line with our U57684 forecast. This represents an annualised net profit of US$480 million vs. our oilseeds and grains estimate of US$499m in 2019,” says Simadiputra.

As at 2.37pm, shares in Wilmar are trading 1 cent higher at $3.84 or 14.5 times FY2020F earnings.