Wilmar International Ltd. (WIL) : Executive Summary

Equity Report | November 19, 2009 | Ticker WIL
Wilmar International Ltd. (WIL)

The Company is involved in the integrated value chain of oil palm cultivation, edible oil refining and packaging, oilseeds crushing, and associated activities TresVista Recommendation BUY CURRENT TARGET SGD 6.32 SGD 7.22
Executive summary
Investment thesis: We initiate coverage on Wilmar International with a BUY rating. We have arrived at our valuation based on a DCF analysis, public comparable analysis, the current and future outlook for the Group, and the outlook for the edible oil sector, with emphasis on the oil palm and soya bean sectors. Wilmar is an integrated agribusiness player involved in the processing of oil palm and soya bean. The Groups activities comprise mainly of the cultivation, milling, refining of oil palm produce; crushing and refining of soya bean and other oilseeds; and the merchandising and packaging of the refined products that include edible oils, oilseed meal, Specialty fats and Oleochemicals. Wilmar is also involved in associated activities such as fertilizer and biofuel manufacturing, and the milling of rice and flour. It also maintains and operates a fleet of liquid bulk vessels to meet its transportation needs. Wilmar is headquartered in Singapore, and its core business operations are located in Indonesia, Malaysia, and China. Possible triggers for stock price movement: IPO listing of China operations:
Sector Edible Fat/Oil Ticker Market Cap. Enterprise Value Per Share Data Current Price 52 Week High 52 Week Low % of 52 Wk. High Number of Shares Multiples PE LTM 2009E 2010E EV/EBITDA LTM 2009E 2010E WIL SGD 40,357.5 mn SGD 46,528.8 mn
SGD 6.32 SGD 7.00 SGD 2.26 90.3% 6,385.681 mn
16.3x 19.7x 15.5x 13.4x 13.5x 11.8x
Wilmar had postponed the listing of its China business citing a weak IPO environment in China/Hong Kong. Wilmar has until January 2010 to list its China arm, failing which it would have to re-initiate the listing procedure. The Group has confirmed that the listing process is still in progress, though a definite date has not been provided. Wilmar China was expected to be the largest Hong Kong IPO year-to-date, at around USD 3.0-4.0 billion. Any progress in this regard is expected to have a positive impact on the stock. Spike in crude oil prices:
Wilmar International vs. Straits Times Index

275.0 250.0 225.0 200.0 175.0 150.0 125.0 100.0 75.0 50.0 25.0 -
The recent upswing in crude oil prices is significant in the context of the palm oil industry. Crude Palm Oil (CPO) prices have historically moved in tandem with crude oil prices. This relation has become more distinct given that refined vegetable oils are a major source of biofuels. An upward movement of crude oil prices is expected to be followed by a similar trend in the price of CPO, encouraging a more positive outlook on the industry as a whole. Occurrence of El Nio:
Nov-08
Jan-09
WIL SP
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Straits Times Index (FSSTI Index)
Source: Bloomberg
Wilmar International - 12 Month Forward P/E

20.0x 17.5x 15.0x 12.5x 10.0x 7.5x 5.0x 2.5x -
Alerts have been issued by meteorological institutes in Malaysia, and Australia highlighting the possible onset of El Nio conditions late in 2009. The phenomenon leads to unusually warm temperatures and exceptionally dry weather in SouthEast Asia and Australia. Such weather conditions are known to have an adverse effect on oil palm plantations in the region, affecting crop yields and productivity. Although there is still uncertainty regarding the occurrence and severity of the phenomenon, negative news regarding El Nio may not bode well for companies in the Plantation sector, and may affect the outlook on the industry at large.
Nov-08
Jan-09
Mar-09
May-09
WIL SP
Jul-09
Sep-09
Nov-09
Source: Bloomberg
TresVista Financial Services: All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local exchanges via Bloomberg and other vendors. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES ARE LOCATED IN DISCLOSURE APPENDIX
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Table of contents
1. 2. 3.
Investment thesis _________________________________________________________ 3 Price performance and correlation __________________________________________ 5 Company overview _______________________________________________________ 6
Background _____________________________________________________ 6 Business operations _____________________________________________ 10

4. 5. 6. Executives & shareholders ________________________________________________ 17 Key developments _______________________________________________________ 20 Sector overview__________________________________________________________ 21
Oil palm industry _______________________________________________ 22 o Crude palm oil Current scenario ____________________________ 24 o o o
Supply and demand for palm oil _____________________________ 25 The relationship between CPO and crude oil ___________________ 28 El Nio and its impact on CPO production ____________________ 29
Soya bean industry ______________________________________________ 31 o Soya bean crushing Current scenario ________________________ 33 o
7. 8. 9. Short term outlook _________________________________________ 35
Edible oil sector: Long-term outlook_______________________________ 37

Recent financial analysis__________________________________________________ 39 Risk factors _____________________________________________________________ 40 Key investment highlights ________________________________________________ 42
10. Valuation analysis _______________________________________________________ 43 11. Valuation EBITDA exit _________________________________________________ 44 12. Valuation Perpetuity growth_____________________________________________ 45 13. Key financials and ratios__________________________________________________ 46 14. Public comparable trading analysis ________________________________________ 47
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Investment thesis
Relative weakness post delay in China IPO - a good opportunity to buy The Wilmar China IPO was initially expected in mid-October, but has been delayed. According to the Group, weak capital markets have lead to an unstable IPO market at the Hong Kong stock exchange. The delay in listing seems justified as the recent IPO performance at the Hong Kong stock exchange has not been encouraging, with most recent IPOs significantly underperforming since listing. The recent relative weakness in Wilmars share price is judged to be the result of investor perception that the response to Wilmar Chinas listing plans was not encouraging, and caused the IPO to be delayed as a result. Core performance backed by supportive market conditions However this presents a good opportunity to invest in the stock, as the Groups core performance has been solid over the past few quarters, and is backed by strong fundamentals and favorable industry dynamics, thereby limiting the downside. CPO prices are expected to improve and gain further ground from current levels, owing to a combination of factors including robust demand from India and China, rising prices for crude oil - which shares a close correlation with CPO, falling CPO inventories and stockusage ratios in recent quarters, and the looming possibility of a bout of the El Nio phenomenon, which could affect output and exert further upward pressure on prices. On the other hand, announcements of a bumper soya bean harvest in USA and improving growing conditions in South America have lead to a correction in Soya bean prices. This has lent a helping hand to crushing margins in China, where supply is low due to a current shortage in Soya bean supply, driving up prices for products like Soya meal. Crushers of soya bean and oilseeds like Wilmar are price-makers as they artificially control demand, and hence prices, by controlling the amount crushed by them. Hence the combination of rising demand and falling raw material prices have created a situation that players in oilseeds crushing like Wilmar can capitalize on. China and India are major growth drivers Demand from China and India are integral to Wilmars growth. Both countries are major customers, and are among the most populous and fastest growing economies in the world. Demand for refined vegetable oil in China and India has accelerated over the past decade. Major reasons include the rise in per capita income in these nations which have seen people shift from traditional, locally sourced vegetable oils and fats to more refined, branded versions that available in the consumer market. The easing of protectionary tariffs in these nations has lead to a surge in imports of vegetable oils and derivatives. Urbanization has been a major trend in China and India over the past two decades, and has altered the demographic profile of these nations; with more and more people moving from a more traditional, agrarian way of life where food requirements were locally sourced, to an urban culture that is dependent on the large scale production of packaged foods, including edible oils, to meet nutritional needs. The improvement in the quality of life in emerging nations has also lead to a change in dietary habits, where consumers prefer processed foods as well more variety in selection, leading to a rise in the large scale production of processed foods, where vegetable oil and specialty fats find a wide range of applications. Vertically integrated business model gives Wilmar the advantage Wilmars vertically integrated business model sets it apart from most of its peers, who are mainly pure-play plantations or midstream comparables. Wilmar benefits from the scale of its business operations, which enables it to gather superior market intelligence from a large network on the ground. This gives the Group the edge in effectively timing its raw material purchases and taking up trading positions to extract maximum gains from prevailing market conditions. Operating its own oil palm plantations allows Wilmar to allocate output efficiently. During times when CPO prices are high the Group has the advantage of selling its mill produce Crude Palm Oil, in the open market, at the cost of its downstream operations. At the same time, Wilmar is a net buyer of CPO as a result of its vast downstream operations, providing its plantations with an immediate buyer for its goods. The Group also enjoys significant logistical advantages arising from the proximity of its refineries to its plantations and important shipping routes. The cost savings thus derived translates significant margin gains given the scale of its operations. Wilmar also operates and maintains a number of key, small scale operations that adds to the benefits derived from its agricultural operations. One such operation is its fledgling fertilizer business that produces NPK fertilizers mainly for its Fresh Fruit Bunch (FFB), Palm Kernel, and CPO subscribers. Accordingly, Wilmar benefits from having a captive market with a significantly lower credit risk. Wilmar also manufactures biodiesel as part of its palm oil refining operations. In this case, the startup cost for setting up biodiesel operations were partially offset by integrating it with its refinery operations. In addition, the Group also maintains a fleet of liquid bulk vessels to meet part of its transportation requirements. Wilmar also has a dominant presence in the Merchandising and Packaging sector for its refined products, in high-growth markets like India and China, as well as Indonesia and Vietnam, among others, where its brands enjoy a majority share of the market. Rise in per capita incomes and purchasing power, as well as the growing level of urbanization in these regions make it very attractive
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as a market for packaged edible oils. Its competitive advantage in these regions is facilitated by joint ventures and tie-ups with local players, enabling it to adjust and modify its product offering to suit local preferences. Ultimately, the scale, volume, and reach of Wilmars operations enable it to extract margins from almost every step in the value chain. Superior market intelligence affords timely purchase of raw materials, transport and logistical operations become more streamlined, inventory risk is minimized, products are diversified to suit local tastes, and the Groups output volumes attract big players like Unilever who require uninterrupted supply for its raw material requirements.
SWOT Analysis
Strengths
Dominant position in palm oil supply-chain market Advantage over other players through economies of scale Relatively insulated from commodity price fluctuations due to volume growth Superior market intelligence Large area of maturing plantations Experienced management with strong track record Dominant market presence for downstream products in China, India, Indonesia, and Vietnam Profitable trading desk and highly effective hedging activities Complementary business activities including shipping and fertilizers Significant cost savings through proximity of plantations to refineries and favorable shipping routes
Weaknesses
Management may be divided among shareholders Lack of transparency in operational data Partial RSPO certification denies the premium commanded by RSPO certified palm oil Supernormal profits dependent on success of trading desk
Opportunities
Conversion of large unplanted land bank for productive use Further expansion into India and China Expansion in other regions including Europe and West Africa Capitalize on China IPO Well placed to take advantage of the increased demand for biodiesel Absorption of surplus CPO supply through biodiesel boom Low gearing ratio allows room for M&A expansion
Threats
Volatility in CPO prices Changes in government regulations and tariff policies Onset of crop disease could that damage plantations Possible cap on consumer pack prices, especially in China Logistical breakdown or civil strife in Indonesia Integration risk of acquired businesses
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Price performance and correlation

Wilmars 2 year price performance
Wilmar's share price perfomance: November 2007-09
90,000,000.0
8.0
80,000,000.0
7.0 Record Q1-08 results following purchase of Kuok Group Strong Q1-09 results. Announces 6.0 plans to list in China Crude oil rebounds. Record palm oil inventories begin to clear after exports pick up 4.0
70,000,000.0
60,000,000.0
Announces delay in IPO of Wilmar China
5.0
50,000,000.0
40,000,000.0 China announces food price cuts 30,000,000.0 Crude oil slumps. Major concerns 20,000,000.0 regarding credit crisis. 2.0 3.0
10,000,000.0
1.0
Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Share Price (SGD) Mar-09 May-09 Jul-09 Sep-09 Nov-09
Volume Traded Source: Bloomberg
Wilmars stock price performance has been in line with the fortunes of the palm oil industry. The stock has witnessed a period of consistent growth after recovering from the lows brought about by the recession late in 2008. Positive news regarding the proposed listing of its China business will be a price trigger in the near to short term.
Relative share price performance & correlation with crude oil & CPO
Public comparables: Share price performance - November 2008-09
Share price correlation with crude oil & CPO prices

350.0
Correlation - r
Hap Seng Plantations Astra Agro Indofood Agri Resources PP London Sumatra Indonesia Golden Agri-Resources IOI Corporation Kuala Lumpur Kepong (KLK)
Crude Oil
0.786 0.681 0.753 0.678 0.778 0.745 0.692 0.571 0.510 0.688
CPO
0.910 0.869 0.886 0.856 0.938 0.914 0.872 0.743 0.660 0.850
300.0 250.0
184.8% 170.7% 166.7% 157.6% 133.5%
200.0
81.9%
150.0
71.6% 45.4% 37.7%
100.0 50.0
Sime Darby Wilmar International

Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09
Nov-08
Hap Seng Plantations PP London Sumatra Indonesia Kuala Lumpur Kepong (KLK)
Source: Bloomberg
Astra Agro Golden Agri-Resources Sime Darby
Indofood Agri Resources IOI Corp. Wilmar International
Average
Source: Bloomberg, Broker Research
Wilmar has consistently been trading in the upper bracket and has returned ~ 133.5% over the last year. Wilmars correlation with Crude oil and CPO prices is among the lowest in the industry. Owing to its integrated business model and diverse revenue streams, the business is partially insulated from external price fluctuations.
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Company overview
Background
Wilmar International Ltd. was founded in 1991 as a palm oil trading company. Headquartered in Singapore, it is one of Asias leading agribusiness groups and the 2nd largest listed company by market capitalization on the Singapore Exchange (as on November 19, 2009). Its business activities include 1. 2. 3. 4. 5. 6. Oil palm cultivation Edible oils refining Oilseeds crushing Consumer pack edible oils processing and merchandising Specialty fats, oleochemicals and biodiesel manufacturing Grains processing and merchandising
Wilmar is one of the largest global processors and merchandisers of palm and lauric oils, and the among the largest palm biodiesel manufacturers in the world. The Group has operations in more than 20 countries across four continents, with the primary focus on Indonesia, Malaysia, China, India and Europe. It employs around 70,000 people, and has over 250 processing plants and an extensive distribution network; with products delivered to more than 50 countries globally. Wilmars oil palm cultivation and processing activities are centered in Indonesia and Malaysia, while its oilseed crushing and consumer packaging activities are located mainly in China. The Group also has business operations in other parts of Asia, Europe and Africa, where it has formed a number of joint ventures with local players.
Global operations
- Areas of operation
- Headquarters - Singapore
Integrated agribusiness model:

Wilmar employs an integrated agribusiness model that captures the entire value chain of the agricultural commodity processing business. This includes the origination and processing of raw materials at each step of the value chain, transportation of the finished product, and ultimately the branding, merchandising, and distribution of a wide range of agricultural products. Wilmars integrated business model, as well as the scale of its operations enables it to profit from lower costs brought about by economies of scale, integration, logistical and distribution advantages, and superior market intelligence. The business is thus able to extract margins from every step of the value chain. In addition to this, the Groups Fertilizer and Shipping businesses complement its core operations, resulting in value addition and an increase in overall efficiency. The Groups superior market intelligence has helped shield its operations from market volatility in the past - through timely raw material purchases and advantageous trading positions.
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Vertically integrated business model
Origination
Processing
Specialty Fats
Other Products: Rice, Flour, Biodiesel
Bulk Edible Oils
Consumer Pack Edible Oils
Oleochemicals
Oilseeds Meal
Merchandizing, Shipping, and Distribution
Customers
Benefits of Wilmars vertically integrated structure

The processing capacities of Wilmars palm oil mills and refineries enable it to process feedstock in excess of what it sources internally from its plantations. The Groups vertically integrated structure drives its market share gains at every part of the value chain. 1. Captive milling capacity ensures Fresh Fruit Bunches from palm trees (FFBs) gets processed in-house and in a timely manner, minimizing inventory loss through storage and degradation. Wilmar also procures FFB from plantations without mills, enabling better utilization of its own mills. 2. Large refining capacity provides economies of scale. Size also makes it a preferred supplier for large buyers like Unilever, where uninterrupted supplies are essential. 3. Refining capacity allows Wilmar to weather downturns in the demand and prices of Crude Palm Oil (CPO), as it can process CPO and store it in the refined form with a longer shelf life. This is especially true when CPO is in a state of over supply. 4. Presence in different geographies allows for producing vegetable oil to meet local specifications and tastes. 5. Integration of biodiesel with refinery lowers initial investment costs significantly and operating costs marginally. 6. Scale of output allows lower shipping costs of CPO. Sourcing CPO and refined oils from competitors also lowers shipping costs. 7. Distribution networks in China and JVs in India and Africa with strong domestic players allows the company access to the best local intelligence on demand, supply and preferences.
Recent acquisitions
Three-A Resources Bhd - 16.7% stake
Wilmar acquired a 16.67% stake in Three-A Resources Bhd, a Malaysian company manufacturer of F&B ingredients. The transaction was completed on November 13, 2009, through a private placement of shares for a total consideration of RMB 46.2 million. Three-As main products include caramel colour and powder, soya protein sauce, glucose and maltose powder, vinegar and Maltodextrin.
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Brisbane sugar terminal
Wilmar acquired a port facility for a sugar terminal in Brisbane, Australia, on September 21, 2009. The acquisition was done through Wilmar Gavilon Pty Ltd., a 50:50 joint venture between Wilmar International and The Gavilon Group, for an undisclosed amount. The terminal features a private berth, 100,000.0 MT dry storage shed, covered truck receiving station and ship loader. Wilmar stated that the facility will be expanded and upgraded to handle grain and other bulk and liquid commodities, and is expected to handle grain exports early 2010.
Water Enterprises Ltd. - 25.0% stake
Wilmar acquired a 25.0% stake in Water Enterprises Ltd., a bottler and distributor of mineral water. The transaction was completed on May 1, 2009, through a transfer of shares from Tibet Water Resources Ltd., for a total consideration of RMB 175.0 million. The Company, through its wholly owned subsidiary in China, bottles and distributes mineral water sourced from Tibet under the 5100 brand name. Wilmar stated that it will undertake to utilize its sales, marketing, and logistics network to further grow the business, as part of a broader consumer strategy in China.
Taizhou Yongan Port Co. Ltd. 39.8% stake
Wilmar acquired a 35.0% stake in Taizhou Yongan Port Co. Ltd., through its wholly owned subsidiary, Wilmar China New Investments Pte. Ltd. The transaction was completed on March 26, 2009, for an undisclosed amount. Taizhou Yongans principal activities are port cargo loading and unloading. Wilmar later increased this stake to 39.77%.
Initial Public Offering of China business

Wilmar International announced its intention to list its China assets and businesses on the Shanghai stock exchange on September 17, 2009. The Group stated that this would lead to a material dilution of around 20.0% of its interest in Wilmar China, which stood at 98.4%. Wilmar also stated that it may sell additional shares of Wilmar China, in connection with the IPO, in line with its intention of retaining a stake of between 51.0% and 70.0% in the entity. On September 30, 2009, Wilmar announced that it would delay the IPO process and continue to monitor market conditions in order to determine an appropriate time for listing. Wilmar applied for listing in July, and according to the regulations, it has until January 2010 to list the China business, after which it will have to re-initiate the procedure. Wilmar China Group processes oilseeds, grain, edible oils, palm and laurics into food products, food ingredients and oleochemicals. Its products include edible oils, feed meals, specialty fats, soy protein concentrate, rice, flour, bran and oleochemicals. Wilmar China has 130 manufacturing plants across 35 locations with a sales and distribution network of around 200 sales offices. The listing is expected to raise around USD 3.0-4.0 billion. The Group stated that it would use the proceeds to fund expansion, and meet working capital requirements.
Future strategy
Wilmar is optimistic about the improving global economic environment, and the resilient demand for food and agricultural commodities. The Group aims to pursue positive growth prospects in emerging markets, which it feels are driven by the growing demand for high quality processed agricultural and consumer products due to rising affluence and increasing urbanization in countries like China. Wilmar intends to increase its investment in core businesses, with an emphasis on growth in India, China, and Indonesia, and also diversify into new markets. Wilmars Chairman, Mr. Kuok Khoon Hong said that the Group is looking to invest at least USD 1.0 billion in China, Indonesia, and Africa, to expand plantations and plants. Wilmar stated that it will also pursue inorganic expansion, and continue to look out for attractive investment opportunities. Wilmars recent acquisition of a minority stake Three-A resources is indicative of expansion in the Groups downstream business. China, which accounted for ~ 49.0% of Wilmars sales in 2008, is an important part of the Groups growth strategy. Wilmars diversification in new businesses is highlighted by its minority stake in Water Enterprises, which it acquired in May 2009. The Group has stated that it intends to further grow the business as part of a broader business strategy for China. Furthermore, Wilmars intention to list its business in China may be seen as a response to growing concerns in China, of the rising dominance international players in Chinas soya bean crushing industry. In addition to expanding its shareholder base in China, the listing would help Wilmar China in being viewed as a more of a domestic player rather than an international one.
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Revenue growth
Wilmar International: Revenues - 2005-2009 (USD millions)
36,000.0
Revenue CAGR 84.4% 32,813.2
30,000.0
24,000.0
18,000.0
19,301.2
12,000.0
7,504.9
6,000.0
4,651.6
2005
M&P - Palm & Laurics Plantation & Palm Oil Mills
Source: Company filings Note: M&P - Merchandising & Processing
2006
2007
2008
Consumer Products
M&P - Oilseeds and Grains Others: Fertilizers & Shipping
Business segments
Revenue breakdown by product - 2008 ( % of total) Revenue breakdown by geography - 2008 ( % of total)
Others 12.4% Consumer Products 16.3% Plantation & Palm Oil Mills 0.2% Others: Fertilizers & Shipping 2.7% M&P - Palm & Laurics 55.3%
Source: Company filings Note: M&P - Merchandising & Processing Source: Company filings
M&P - Oilseeds and Grains 25.5%
South East Asia 24.0%
Europe 8.7%
India 5.7%
China 49.2%
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Business operations
a) Plantations and palm oil mills
Wilmar owns and operates more than 500,000 hectares of oil palm plantations in Malaysia and Indonesia. As of December 31, 2008, the Groups total planted area amounted to 223,528 hectares, comprised of 160,805 hectares in Indonesia, and 62,453 hectares in Malaysia. Wilmars plantations are located in Sumatra, West and Central Kalimantan in Indonesia, and Sabah and Sarawak in Malaysia. In addition to processing locally harvested Fresh Fruit Bunches (FFBs), Wilmar also sources FFB from third-party suppliers, including small landholders under the Plasma Programme developed by the Group. The Plasma Programme is a government initiative in Indonesia whereby plantation companies help develop plantation plots held by small landowners. The Company managed 33,867 hectares under the Plasma Programme during the year ended December 31, 2008. Additionally, the Group managed a planted area of more than 4,000 hectares in Uganda, approximately 36,000 hectares in West Africa, and about 120,000 hectares under a small shareholders scheme in West Africa during the year.
Oil palms Productivity and maturity The main factor that contributes to the productivity of a plantation is its maturity, which determines the yield. The FFB yield of a typical oil palm is relatively low during the first three years after plantation. During the years 7-18, yield gradually increases every year, until the oil palm reaches peak production. Beyond that, the yield of the oil palm wanes. The commercial lifespan of an oil palm is around 25 years, after which it is no longer deemed to be commercially viable for production. Fully mature oil palms produce 18 to 30 metric tonnes (MT) of FFB per hectare. Yield depends on a variety of factors, including age, seed quality, soil and climatic conditions, quality of plantation management and the timely harvesting and processing of FFBs. The harvested FFB is then processed at oil mills to produce Crude Palm Oil (CPO) and Palm Kernel (PK). CPO and PK are the main raw materials used in the refining process of palm oil. During the year ended, December 31, 2008, the Group processed 7.2million MT of FFB of which 41.2% was sourced internally.
Projected maturity profile (hectares)

Maturity CAGR 8.0% 300,000.0 270,000.0 240,000.0 210,000.0 180,000.0 150,000.0 120,000.0 90,000.0 60,000.0 30,000.0 223,258.0 234,076.5 241,098.8 248,331.8 255,781.7 263,455.2 271,358.8
2008
2009
< 3 years
2010
4-6 years
2011
7-14 years
2012
15-18 years
2013
> 18 years
2014
Source: Independent Research
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b) Merchandising and processing Palm and laurics

Wilmar is one of the largest global processors and merchandiser of palm and lauric oils, with a distribution network spanning more than 50 countries. Their products include RBD (refined, bleached, and deodorized) palm oil, RBD palm olein, RBD palm stearin, RBD palm kernel oil, RBD palm kernel stearin, crude palm oil (CPO), specialty fats, oleochemicals, and biodiesel. These products find applications in many industries, including food manufacturing, cosmetics and pharmaceuticals. The Group owns processing plants in major palm producing countries like Indonesia and Malaysia, as well as in consuming countries such as China, the Netherlands, Germany and Vietnam. Wilmar also owns processing plants in other consuming countries like India, Russia, Ukraine, Uganda and, Ivory Coast through joint ventures.
The refining process:

Fresh Fruit Bunches (FFB)
Milling
Palm Kernel
Palm Kernel Meal
Crushing
Crude Palm Oil
Crude Palm Kernel Oil
Refining Fractionating
RBD Palm Oil Refining Fractionating Refining
RBD Palm Olein
RBD Palm Stearin
RBD Palm Kernel Olein
RBD Palm Kernel Stearin
RBD Palm Kernel Oil
Further processing into Specialty Fats, Oleochemicals, and Biodiesel
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Products and applications:

Bulk edible oils
Wilmars Bulk Edible Oil products include RBD palm oil RBD palm olein RBD palm stearin RBD palm kernel oil RBD coconut oil
RBD palm oil can be further processed into RBD palm olein and RBD palm stearin. RBD palm olein, which has a lower proportion of saturated oil than RBD palm stearin, is mainly used as cooking oil and in industrial frying of processed foods. RBD palm stearin is mainly used in the manufacturing of specialty fats and oleochemicals. Palm kernel oil and coconut oil, also known as lauric oils, have a high proportion of lauric acid and are primarily used for the production of specialty fats and oleochemicals. Consumer pack edible oils
The Group produces a range of consumer pack edible oils. The oils used are either pure vegetable oils or a blend of various oils including groundnut oil and soya bean oil. These edible oils are merchandized and packaged as a wide variety of cooking oils that are sold through the Groups own brands. Specialty fats
Wilmars specialty fats products include cocoa butter equivalents (CBE), cocoa butter replacers (CBR), cocoa butter substitutes (CBS), specially formulated filling fats, creaming fats, ice-cream fats, milk fat replacers, shortenings, margarines, frying fats and many tailor-made fats to suit customer requirements. These products are widely used in chocolate coating fats, chocolates, sugar confectionery, bread, pastry, cakes, cream filling (for candy, wafers, and biscuits) and in coffee whiteners. Oleochemicals
The Groups oleochemical products include fatty acids, fatty alcohols, soap noodles, glycerine and other derivatives. They are used in a variety of applications including the manufacturing of detergents, shampoos, soaps, cosmetics, pharmaceutical products, food additives, plastics, lubricants, surface coatings, and polymers. Biodiesel
Wilmar produces palm oil methyl ester and palm olein methyl ester. Its biodiesel meets European (EN14214) and US (ASTM D6751) standards. It contains virtually no sulphur, and burns cleaner than traditional petroleum-based fuel.
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c)
Merchandising and processing Oilseeds and grains
Wilmar is a leading oilseed crusher in China, where it processes oilseeds like soybean, rapeseed, groundnut, cottonseed, sunflower seed and sesame seed into protein meal and edible oils. Protein meal is used primarily by feed millers to produce animal feed for hog, poultry, and aquaculture industries. The edible oils produced are sold to the Groups consumer products division, as well as to third parties, including distributors, wholesalers, feed millers, industrial users, and retailers in China. The Group also exports meal to Japan, Korea, and Vietnam. Wilmar also engages in the milling of wheat into wheat flour and wheat bran, as well as the milling of paddy into rice, rice bran and rice bran oil.
Oilseeds/soya bean processing:
Soya Beans
Cleaning, cracking, and dehulling
Soya bean hulls
Dehulled/ Cracked beans
Heating and Grinding
Heating, Conditioning and Flaking
Low-protein soya bean hulls (meal)
Full-fat soya flakes
+ Hexane
Extraction Wet Meal Desolventizing, toasting, drying, cooling Defatted flakes Grinding
High protein soya bean meal
Miscella
Carbohydrate removal
Soy protein concentrate
Recovered Hexane
Distillation and Filtration
Crude soya bean oil
Degumming
Chemical and Physical refining
Refined soya bean oil
Soy Lecithin
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Products and applications:

Soya bean meal
Soya bean meal is one of the most widely used protein ingredients in animal feed. Soya bean meal is a concentrated source of protein and energy, and is lower in fiber than most other oilseed meals available to feed manufacturers. Soya bean oil Soya bean oil is used in many edible products such as salad and cooking oils, shortenings and margarines, and for industrial uses such as pesticides carriers, adhesives, waterproof cement, soaps, paints, plastics, biofuel and lubricants. The Group markets soybased consumer pack edible oils under its own brands. Soy Lecithin
Soy lecithin is a by-product of crude soya bean oil refining. Lecithin is widely used in animal and fish feeds, as well as in food and non-food applications. Lecithins food related applications include margarine, baking products, confectionery, ice-cream and whipped toppings, instant food, cocoa powder, coffee whitener, powdered soups and milk replacers. Its non-food applications include cosmetics, soaps, pharmaceuticals, paints and coatings, inks, polymers, pesticides and textiles. Soy proteins
Wilmar also produces soy proteins such as Arcon SJ and SPC. Arcon SJ is used in meat processing while SPC is used as a high source of protein in the feed industry.
d) Consumer products
Wilmar, along with its joint ventures, produces consumer pack edible oils and markets them under its own brands in China, India, Indonesia, Vietnam, and Bangladesh. The combined operations in these countries makes Wilmar the worlds largest producer of consumer pack edible oils. In addition to edible oils, the Groups markets many flour brands, including Double Ring, Purple Orchid, Neptune, Yellow Dynasty, Twin Crane, Twin Spoon and Blue Key. 1. China:
Wilmar produces and markets different types of edible oils under various brands in China, targeted at different market segments. These segments are drawn by geographical regions and consumer preferences. The Group has an established sales and distribution network spanning traditional retail outlets, hypermarkets, supermarkets and convenience stores nationwide.
S.No. 1. 2. 3. 4. 5. 6. 7. 8. Brand Arawana Koufu Orchid Gold Ingots Golden Carp Huaqi Baihehua Xiangmanyuan Products Range of edible oils including blended oils, soya bean, rapeseed, corn, sunflowerseed, sesame, groundnut and camellia Range of edible oils including blended oils, soya bean, rapeseed, corn, sunflowerseed, sesame, groundnut and camellia Groundnut oil Soya bean oil Rapeseed oil Assortment of edible oils Assortment of edible oils Assortment of edible oils
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2.
Indonesia:
Wilmar markets its products in Indonesia under the Sania and Fortune brand names
S.No. 1. 2.
Brand Sania Fortune Palm Oil Palm Oil
Products
3.
India:
Wilmars products under the Fortune brand of cooking oil are distributed by Adani Wilmar Limited (AWL) a joint venture company between the Adani Exports Group of India and Wilmar. Other brands distributed by AWL are Jubilee and Raag. Wilmar also has two other brands in India - Aadhar and Alpha which are distributed by Acalmar, a joint venture company with the Acalpo Group. Both brands are distributed mainly in the eastern, coastal region of India, in states like Andhra Pradesh, Tamil Nadu and Orissa.
S.No. 1. 2. 3. 4. 5. Brand Fortune Jubilee Raag Alpha Aadhar Products Assortment of edible oils (including soya, sunflower seed, cottonseed, mustard seed, groundnut, palm, and coconut oil) Shortening Soya bean oil and vanaspati Palm oil and vanaspati Soya bean and sunflower oil
4.
Vietnam:
Wilmar offers a range of edible oil and related products, designed to target different market segments, in Vietnam.
S.No. 1. 2. 3. 4. Brand Neptune Simply Meizan Cai Lan Products Palm olein blended with soya bean oil Soya bean oil, rapeseed oil, sunflower oil, and rice bran oil Palm olein blended with soya bean oil, and soya bean oil Palm olein blended with soya bean oil
e) Fertilizers
Wilmars fertilizer business is designed to leverage the Groups network of raw material suppliers. Its primary customers are the FFB, CPO and palm kernel suppliers to the Group. This enables Wilmar to benefit from the captive market with lower credit risk. The fertilizer manufacturing and distribution business is expected to grow with the expansion of oil palm acreage in Indonesia. Wilmar produces NPK compound fertilizers, which consists of three primary nutrients Nitrogen (N), Phosphorous (P), and Potassium (K). The Group is also engaged in the trading of straight fertilizers such as potash, rock phosphate, urea, ammonium sulphate, and kieserite.
f)
Shipping
Wilmar owns and operates a fleet of liquid bulk vessels that caters primarily to in-house needs. The fleet meets around 30.0% of the Groups liquid bulk shipping needs. In October, 2008, Wilmar acquired a 60.0% stake in the Raffles Shipping Corporation, a Singapore based ship chartering agent that managed Wilmars vessels prior to the acquisition. The acquisition is expected to enable Wilmar manage its shipping operations more efficiently.
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Wilmars overall production capacities

Wilmars overall production capacities are distributed between Indonesia, Malaysia, and China. Its palm oil refineries, fertilizers, and biodiesel plants are situated in Indonesia, and Malaysia, while the oilseeds crushing and refining, flour and rice milling, and consumer packaging plants are located in China.
Manufacturing Facilities by Process
Process Malaysia & Indonesia Refining Fractionation Palm Kernel & Copra Crushing Packing Plant Palm Oil Milling Specialty Fats Fertilizer Biodiesel China Oilseeds crushing Refining Consumer oils packing Oleochemicals Specialty fats Flour milling Rice milling
during the period.
No. of Plants
Capacity (MT/annum)
33 38 23 12 32 5 2 4
9,550,000.0 9,360,000.0 2,530,000.0 560,000.0 9,540,000.0 320,000.0 450,000.0 1,150,000.0
NA NA NA NA NA NA NA
12,430,000.0 6,240,000.0 5,180,000.0 620,000.0 490,000.0 1,510,000.0 300,000.0
Note: as of June 30, 2007. Includes plants & facilities that were planned/under construction
Customer profile
Wilmar International - Major Customers
Customer Alfred C. Toepfer International Arnott Indonesia Beijing Heyirong Cereals & Oils Beijing Orient-Huaken Cereal & Oil Bunge Cargill China Grains & Oils Group China National Vegetable Oil Corp. Cognis Deutschland Hindustan Lever Nestle Nirma Procter & Gamble Savola Unilever VVF
Source: Broker Research Note: As of September 2008
Country Germany Indonesia China China USA USA China China Germany India Switzerland India USA Saudi Arabia Netherlands/UK India
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Executives & shareholders

Board of Directors
a) Mr. Kuok Khoon Hong Chairman and Chief Executive Officer
Mr. Kuok, 59, is the Co-founder, Chairman and Chief Executive Officer of the Group. He is in charge of overall management of the Group with a particular focus on new business development. He has held several key executive positions in various companies, including General Manager of Federal Flour Mills Bhd from 1986 to 1991, and Managing Director of Kuok Oils & Grains Pte Ltd from 1989 to 1991. Mr. Kuok graduated from the then University of Singapore with a Bachelor of Business Administration degree. b) Mr. Martua Sitorus Executive Director and Chief Operating Officer
Mr. Sitorus, 49, is the Co-founder, Executive Director and Joint Chief Operating Officer of the Group. He is in charge of the management and development of plantations, infrastructure, factories and facilities in Indonesia and India. He is also in charge of technical operations and Group operations in Malaysia and Europe. He holds a degree in economics from HKBP Nomensen University in Medan, Indonesia. c) Mr. Chua Phuay Hee Executive Director Finance and Corporate Services
Mr. Chua, 55, is in charge of Finance and Corporate Services. He joined the Group in 2002. His past positions include Chief Financial Officer and Chief Risk Officer of Keppel TatLee Bank Ltd, Singapore. Prior to that, he spent 9 years with the Monetary Authority of Singapore in various capacities relating to insurance regulation, human resource management and securities industry regulation. He is a Director at Industrial Bank Co., Ltd., a company listed on the Shanghai Stock Exchange. Mr. Chua received his Masters of Science (Actuarial Science) degree from Northeastern University, Boston, USA, and a Bachelor of Science (First Class Honours) degree in Mathematics from the then Nanyang University, Singapore. d) Mr. Teo Kim Yong Executive Director (Commercial)
Mr. Teo, 55, is in charge of commercial activities and the Groups merchandising of palm and lauric oils. Mr. Teo joined the Group in 1992 and has extensive experience in the merchandising of edible products. His past positions include Marketing Manager of Sime Darby Edible Products and International Marketing Manager of Hwa Hong Oil Industries. He also served as a director of Gardner Smith, Singapore, Marketing Director of Keck Seng Pte Ltd and Managing Director of Kimlimco Pte Ltd. Mr. Teo graduated from the then University of Singapore with a Bachelor of Business Administration degree.
Key management
a) b) c) d) e) Mr. Kuok Khoon Hong Chairman and Chief Executive Officer Mr. Martua Sitorus Executive Director and Chief Operating Officer Mr. Chua Phuay Hee Executive Director Finance and Corporate Services Mr. Teo Kim Yong Executive Director (Commercial) Mr. Lee Hock Kuan Executive Director (Head of Southern Region, Consumer Pack, Specialty Fats & Oleochemicals for the China division)
Mr. Lee, 55, is Vice Chairman of China Division and Group Head of Consumer Pack & Specialty Fats. He has been a Director of Kuok Oils & Grains Pte Ltd since 1997. Mr Lee was responsible for starting the Kuok Groups first vegetable oil refinery in China in 1988. He has extensive experience in the overall management and strategic operations in the edible oils, oilseeds and grains businesses, especially in China where he has been posted for almost 20 years. Mr Lee holds a Masters Degree in International Business Management. f) Mr. Goh Ing Sing Head of Plantations Division
Mr. Goh was appointed as the Deputy Head of Plantations Division in July 2007 and has served as the Head of Indonesian Plantations since 1992. He has held various managerial positions with plantation companies from 1976 to 1992. He received his Executive Masters of Business Administration and Bachelor of Business Administration degrees from Preston University, USA and a Bachelor of Science (Honours) degree from the University of New South Wales.
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g)
Mr. Hendri Saksti Head of Operations, Indonesia
Mr. Saksti joined the Groups Indonesian operations in 1994 as a Branch Manager, responsible for the palm oil business. In 1996, he was appointed Finance and Accounts Director. He is currently in charge of the Groups fertilizer business, several manufacturing plants and the marketing of Wilmars consumer pack cooking oil in Indonesia. h) Mr. Yee Chek Toong Head of Operations, Malaysia
Mr. Yee was appointed Head of Operations, Malaysia in July 2007, following the completion of the Groups merger and restructuring exercise. He joined PGEO Edible Oils Sdn Bhd in 1980 and is presently the Chairman and Managing Director of PGEO Group Sdn Bhd. He holds a Bachelor of Science (Honors) degree majoring in Chemistry from the University of Malaya. i) Mr. Francis Heng Hang Song Chief Financial Officer
Mr. Francis Heng joined the Group as the Chief Financial Officer in September 2008. He is in charge of Finance, Corporate Secretarial, Legal, Risk Management and Investor Relations. He has previously worked for SingTel, ST Engineering, Jardine Matheson & Tetra Pak group. Mr. Heng started his career with United Overseas Bank and subsequently joined the Monetary Authority of Singapore in foreign reserve management, and then worked for JP Morgan. He has lived and worked in New York, London, Switzerland & Hong Kong. Mr. Heng graduated from the National University of Singapore with a Business Administration degree.
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Shareholding profile
Top 10 shareholders
Shareholder/Institution Wilmar Holdings Pte. Ltd. Kuok Brothers Sdn. Bhd. Archer-Daniels Midland Co Kerry Group Limited Kuok (Singapore) Limited Van Eck Associates Corporation William Blair & Company, L.L.C. Barclays Global Investors, N.A. JF Asset Management (Singapore) Ltd. Capital International, Inc. Others Total Shareholding Source: Reuters
Number of Shares 1,874,362,601.0 1,164,784,955.0 662,012,700.0 535,326,678.0 256,951,112.0 35,970,115.0 30,365,400.0 18,515,000.0 17,138,630.0 16,169,520.0 1,774,084,289.0 6,385,681,000.0
% holding 29.35% 18.24% 10.37% 8.38% 4.02% 0.56% 0.48% 0.29% 0.27% 0.25% 27.78% 100.00%
1.
Key shareholder profile The Kuok Group
Kuok Group of companies was started in 1949 in Malaysia as Kuok Brothers Private Limited engaged in the business of trading in rice, sugar and wheat flour. The Kuok Group has since grown to become one of Asia's most diversified multinational conglomerates. Kuok Groups business activities include Trading - sugar, fertilizers, chemicals, steel products and agricultural machinery Shipping and logistics Manufacturing sugar refining, flour milling, feed milling, fertilisers, chemicals Financial services - insurance, fund management Real estate Hotels and hospitality Environmental engineering, waste management and utilities Leisure and recreation, and media
2.
Archer Daniels Midland Company (ADM)
ADM is one of the worlds largest agricultural processors of soya beans, corn, wheat and cocoa. It is also a leading manufacturer of bio-energy, namely ethanol and biodiesel. Founded in 1902 and incorporated in 1923, ADM is headquartered in Decatur, Illinois, and operates processing and manufacturing facilities across the United States and worldwide. It is a Fortune 100 company and is listed on the NYSE.
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Key developments
2009 Completed the acquisition of a 17.0% stake in Malaysias Three-A Resources, with the view of forming joint ventures to set up caramel processing facilities in China to serve soya sauce manufacturers. Announced the intention of listing its China business. The listing is currently delayed due until further notice. Formed Joint Venture with Nizhny Novgorod Fats & Oils Group and Delta Exports Pte Ltd to drive expansion into Russia and the CIS countries Completed the merger with Kuok Groups palm plantation, edible oils, grains and related businesses in a deal worth USD 2.7 billion Concluded a restructuring exercise to acquire the edible oils, oilseeds, grains and related businesses of Wilmar Holdings Pte Ltd (WHPL), including interests held by Archer Daniels Midland Asia Pacific (ADM) and its subsidiaries in these businesses, for USD 1.6 billion Formed joint venture with Olam International Ltd and SIFCA Group, one of Africas largest agro -industrial groups with significant interests across palm oil, cotton seed oil, natural rubber and sugar sectors in Africa Successfully launched inaugural USD 600.0 million convertible bonds issue due 2012 Re-quoted on the Singapore stock exchange on August 8, 2006, after a successful equity placement exercise that raised USD 180.0 million Renamed Wilmar International Limited on July 14, 2006 upon completion of the reverse takeover of Ezyhealth Asia Pacific Ltd. Expanded oil palm plantation acreage through the acquisition of a total of 140,000 hectares in Indonesia Concluded a major capacity expansion through completion of 3 refineries, 3 fractionation plants, 4 palm kernel crushing plants, 4 palm oil milling plants and 1 compound fertilizer manufacturing plant. Completed a refinery and a fractionation plant through a joint venture with TSH Resources in Malaysia Acquired a controlling stake in PT Cahaya Kalbar Tbk, an Indonesian producer of specialty oils and fats for cocoa confectionery, baked confectionery, and related beverages and food industry Established first compound fertilizer manufacturing plant Developed and marketed the Sania brand of edible oil in Indonesia Acquired three copra crushing plants in Indonesia Expanded into production of higher value-added downstream products including specialty fats Established refinery operations in Malaysia with the acquisition of one palm oil refinery, and one fractionation plant in Butterworth. Upgraded capacity of both plants upon commissioning Established first palm oil milling plant; purchased first liquid bulk transport vessel
2008
2007
2006
2005 2002 2000 1998 1996
1995 1991
Acquired a land bank of approximately 7,100 hectares and established first oil palm plantation in Sumatra, Acquired two crushing plants and a refinery in Indonesia, commenced work on a second refinery Commenced operations as a palm oil trading company
Indonesia
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Sector overview
Introduction Global oil and fats industry
The global oils and fats industry has undergone major changes over the last four decades. Vegetables oils have replaced animal fats as the major source of cooking oils and fats. World vegetable oil production grew by 5.2% per annum during the period 19982008; vis--vis 1.9% per annum for animal oils and fats, highlighting the increasing usage of vegetable oils. The global vegetable oil market has seen significant growth over the past several years, with the increase in per-capita consumption of vegetable oils in Latin American and Asian nations, and due to the demand from the non-food sector, especially for biofuel production. This growth is lead by China and India in particular, where rising populations, developing economies and the gradual easing of trade tariffs and restrictions have lead to rising demand and consumption. Developed nations, on the other hand, have reached saturation point where per capita consumption of vegetable oils are concerned. There has also been a significant shift in production areas over the last decade, most notable being the fact that the US lost its position as the worlds largest producer of oils and fats. At the same time China and Indonesia gained significant market share in the vegetable oils and fats industry, consolidating Asias position as the major producer of vegetable oils and fats. The other major Asian producers are Malaysia and India.
Vegetable oils industry

The global vegetable oils industry accounted for ~ 84.0% of total production of oil and fats in 2008, and has enjoyed steady growth over the course of the past decade. The factors contributing to the increase in demand include rising populations, higher per capita income in developing countries, coupled with increasing change in consumer dietary habits, leading to a switch from animal oils and fats to vegetable oils. Another contributor to the growth in the industry, especially since 2006, has been the demand from the non-food sector, mainly biofuel producers, where vegetable oils have found applications as a source of an alternative to fossil fuels.
Global production of 8 major vegetable oils (million MT)
50.0
40.2 34.6 41.7 36.4
45.8 37.6 32.6 37.6
47.7
40.0
35.6
30.0
20.5
20.0
15.7 9.2
17.3 10.6
17.0 10.6
18.3
10.0
16.6
16.0
15.8
9.7
16.4
11.6
16.4
0.0
2005
Palm & Palm Kernel
Source: USDA
2006
Soya bean Rapeseed
2007
Sunflowerseed
2008
Cottonseed Peanut
2009
Coconut Olive
During the period from 2005-2009, palm oil and palm kernel oil, together with soya bean oil, have typically accounted for around 64.0% of the global production of the major vegetable oils. Production of palm oil and palm kernel oil witnessed robust growth at 6.1%, while soya bean oil production grew at a relatively slower pace, at a CAGR of 2.2%. As a result, the share of palm and palm kernel oil in total production has gone up from 33.9% in 2005 to 36.8% in 2009. This increase in production has been largely attributed to improving yield performance in all key producing countries, except Malaysia, including Indonesia, Thailand, Colombia, and Nigeria, as well as more mature oil palm areas coming into production in Indonesia. Part of the growth is also the result of a bias towards oilseeds with higher oil content. Oil palm has the highest oil yield, at around 3.43 tonnes/hectare (t/ha), as compared to 0.36 t/ha for soya bean and 0.60 t/ha for rapeseed. The historical price discount for palm oil in relation to other oils also makes it a more attractive option. All of this, together with the overall growth in the vegetable oils industry, contributed to the growth in the palm oil industry.
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Average prices of the four vegetable major oils: 1998 - June 2008 (USD/tonne)
2000.0 1800.0 1600.0 1400.0 1200.0 1000.0 800.0 600.0 400.0 200.0 0.0 1998 1999 2000 2001 2002 2003 2004
Soya bean oil
2005
2006
2007
Sunflower Oil
Source: IndustryResearch
Rapeseed Oil
Crude palm oil
2008 (JanJune)
Per capita consumption of vegetable oil (kg)

45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0
Ko ng SA zi l do ne si a hi n pa n -2 7 an an Pa ki st Br a Ta iw EU In d U ia a
40.3
31.5
29.7
29.2
28.7 25.2 18.9 17.9
17.4 11.8
on g
Source: Industry Research
Oil palm industry

Palm oil enjoys the largest share of the global vegetable oil market in terms of production and consumption. The total production of palm oil for FY ended September 2009 stood at 42.58 million MT. This represents an 18.8% increase from the total global production in 2006, which stood at 35.8 million MT, at a CAGR of 6.1%. Indonesia and Malaysia are by far the leading palm oil manufacturers in the industry, together accounting for more than 87.0% of global production during 2009. The other major producers of palm oil are Thailand, Colombia, and Nigeria.
Palm oil: World production - 2009 ('000 MT, % of total)
22000.0
Malaysia, 17,500.0, 41.1% Thailand, 1,200.0, 2.8% Colombia, 778.0, 1.8% Nigeria, 820.0, 1.9% Other, 2,783.0, 6.5% Indonesia, 19,500.0, 45.8%
Source: USDA
In
Palm oil production: 2005 - 2009 ('000 MT)
Ja
20000.0 18000.0 16000.0 14000.0 12000.0 10000.0 8000.0 6000.0 4000.0 2000.0 0.0
4,783.0 5,343.0 15,560.0 15,485.0 16,600.0 15,290.0
19,500.0 18,000.0 17,567.0 17,500.0
5,369.0
5,581.0
2006
2007
Indonesia Malaysia
2008
Others
2009
Source: USDA
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Domestic consumption
India, China, Pakistan, Malaysia, Indonesia and the European Union (EU27) are the major consumers of palm oil, accounting for an average of 62.0% of global consumption during the period 2006-2009. Total domestic consumption has increased in tandem with production over the last four years. The period 2006 to date has seen Indias domestic consumption of palm oil grow at a CAGR of 23.5%, making it the single largest consumer of palm oil globally accounting for 14.2% of total consumption. In addition to the fact the nation has traditionally been a major consumer of palm oil, where it most widely used vegetable oil, consumption growth has also been assisted by factors including the increasing awareness about palm oil and its applications and benefits, and the gradual easing of the import regulations and protectionary tariffs imposed on the commodity. Owing to this, Indias share of global palm oil consumption has risen significantly, from 8.9% in 2006, to 14.2% in 2009. Other than Indonesia and Malaysia, who are also the largest producers, China and the EU-27 are the other main consumers of palm oil. Palm oil, along with soya bean oil, are the major oils consumed in China, who has been the largest consumer of oils and fats since 2003. Palm oil plays a key role in Chinas oleochemical industry, with palm-based oleochemicals accounting for around 40.0% of total production. The growth of the oleochemicals industry, along with favorable demographics and rising per capita income are the major growth drivers behind the increasing consumption of palm oil in China. One of the main drivers for palm oil consumption in the EU is the rising demand for the commodity from the biofuel industry. This follows from the 1997 EU resolution to improve the share of renewable energy in total energy consumption. Concerns over the increasing demand for energy, rising fossil fuel prices, and the threat of global warming have lead the EU to bind its member states to achieving a 10.0% minimum target for the use of biofuels in transport. Though it is one of the most widely used edible oils in the world, it is important to note that the rising affluence of consumers will eventually lead to competition for oil palm as cooking oil, due to its high concentration of saturated fats (51.0%), against substitutes like soya bean (15.0%), as consumers switch to healthier options. However the base-load demand for palm oil in industrial preparation should continue to be sustained as palm oil is the lowest cost option among edible oils, as it is produced in large quantities.
Global palm oil consumption by region - 2009 ('000 MT, % of total)

China, 5,550.0, 13.3% Indonesia, 4,875.0, 11.7%
Global palm oil consumption by region - 2006 ('000 MT, % of total)

China, 4,974.0, 14.2% India, 3,124.0, 8.9% Indonesia, 4,255.0, 12.2%
India, 5,890.0, 14.2%
EU-27, 4,151.0, EU-27, 4,553.0, 10.9% 11.9%
Malaysia, 3,151.0, 7.6% Others, 15,381.0, 37.0% Pakistan, 2,200.0, 5.3% Others, 13,836.0, 39.6%
Malaysia, 2,926.0, 8.4% Pakistan, 1,708.0, 4.9%
Source: USDA
Source: USDA
Competitive advantage of palm oil versus other vegetable oils Palm oil has a natural cost advantage versus all other types of vegetable oils. This is due to the fact that once the plantations have started bearing fruit; the variable costs versus other crops are much lower, as it is not an annually cultivated crop. Also, the yields from palm plantations are much higher than other crops. Yields in different plantations may vary, and are driven by better saplings, early year care, and better estate management all of which can improve profitability. Typically, all estates have good and experienced managers, and well set procedures which if adopted should provide for a profitable plantation. The profitability of the plantation companies is largely tied to palm oil prices. However, the price structures can vary, with some plantations selling just FFB, some only processing up to CPO, and some with integrated plants that extract and refine the FFBs into CPO, cooking oil, margarine, biodiesel, specialty fats and other oleochemicals.
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Crude palm oil Current scenario

The whole value chain of palm oil and its derivatives, palm-based oleochemicals, and biofuels are derived from CPO. The price of CPO is the main measure by which the current and future prospects of the Palm oil are determined. Aside from the dynamics of demand and supply, the price of CPO is determined by a host of other factors ranging from soya bean crushing volumes and prices, fertilizer prices, and livestock populations to weather forecasts, biological tree stress, export taxes and other government controls, among others.
Factors affecting CPO price Supply side Soya bean harvest & crushing Below expectations Rapeseed harvest & crushing Below expectations Palm oil production Below expectations Weather La Nina, El Nino, weak monsoon Biofuels As gasoline demand increases Fertilisers As price increases Low cycle Biological tree stress Export tax As tax increases Demand side Livestock Festivals Winter clouding effect Imports Import tax Price relative Soya bean oil price Rapeseed oil price Crude oil, biofuel prices Edible oil inventory Olein discount to soybean oil USD relative value As price rises As price rises As price rises As stock/usage ratio drops As olein discount widens As USD weakens As price drops As price drops As price drops As stock/usage ratio rises If olein trades at a premium As USD strengthens NA NA Changes in forecast USDA, Oil World reports NA NA As livestock population rises Seasonal, generally in 3Q Non winter time As imports jump As tax decreases As livestock population drops Post festivals, generally 1Q During winter, generally 1Q As imports drop As tax increases USDA report NA NA USDA, Oil World reports Government announcements Above expectations Above expectations Above expectations Favourable weather As gasoline demand drops As price drops Peak cycle As tax decreases USDA, Oil World reports USDA, Oil World reports MPOB reports NOAA reports EPA annual RFS decision NA MPOB, company reports Government announcements Bullish scenario Bearish scenario Trigger
CPO price history (USD/tonne)

700.0 650.0 600.0 550.0 500.0 450.0 400.0 350.0 300.0 250.0 200.0 90/91 91/92 92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07
Very high yields due to abnormal rainfall. Soybean prices collapse due to Brazilian Real devaluation. Supply shortage due to Indonesian forest fires and drought. Robust demand from India, Pakistan, and China Liberalization of Indian and Pakistani palm oil import market. Malaysian shortage due to cyclical decline in yields
Source: Bloomberg, Broker Research
Average CPO Price
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Oil palm sector: Shortterm outlook

Some of the key factors affecting the outlook on CPO prices in the near to medium term are 1. 2. 3. The supply and demand for palm oil The relationship between CPO and crude oil El Nio and its impact on CPO production
Supply and demand for palm oil

CPO production has been particularly constrained during 2009. Apart from adverse weather conditions, the lower use of fertilizers has decreased CPO productivity. The credit crisis has had an unexpected impact on yields. During the latter part of 2008, the crisis caused a general shortage of working capital, which lead to a lower use of fertilizers by the small plantations owners in Indonesia and Malaysia, who form the mainstay of palm oil production in the region. Lower fertilizer use results in poor FFB yields. The lead time for this trend is generally around six months. Research also indicates that fertilizer use is still an issue in the region. A monthly comparison of oil palm produce is indicative of the drop in yield and lower production numbers. Malaysias production of the four main derivatives of FFBs Crude Palm Oil, Palm Kernel, Crude Palm Kernel Oil, and Palm Kernel Cake have dropped in almost every month in 2009 when compared to the corresponding month in 2008. The milling capacity utilization rate in Malaysia has dropped to 86.1% during the period January-September 2009, from 94.0% during the corresponding period in 2008.
Malaysian Oil Palm Produce - 2008 vs. 2009 Crude Palm Oil Month January February March April May June July August September Total 2008 1,424.2 1,228.0 1,294.7 1,327.6 1,457.9 1,468.9 1,560.2 1,600.2 1,579.4 12,941.2 2009 1,330.2 1,187.4 1,275.8 1,281.9 1,395.3 1,447.6 1,492.2 1,495.2 1,556.9 12,462.5 % change (6.6%) (3.3%) (1.5%) (3.4%) (4.3%) (1.5%) (4.4%) (6.6%) (1.4%) (3.7%) 2008 372.9 323.5 352.7 346.2 365.2 364.5 402.3 405.7 402.8 3,335.7 Palm Kernel 2009 353.4 318.6 345.5 335.9 351.5 353.7 381.9 373.0 385.6 3,199.0 % change (5.2%) (1.5%) (2.0%) (3.0%) (3.7%) (3.0%) (5.1%) (8.0%) (4.3%) (4.1%) Crude Palm Kernel Oil 2008 182.2 147.8 164.7 167.5 170.9 172.9 167.7 189.1 189.0 1,551.8 2009 165.3 160.3 161.3 159.5 162.8 162.7 178.4 176.4 158.2 1,484.9 % change (9.3%) 8.4% (2.1%) (4.8%) (4.7%) (5.9%) 6.4% (6.7%) (16.3%) (4.3%) Palm Kernel Cake 2008 204.3 165.6 184.4 183.1 188.2 189.3 186.0 209.8 207.8 1,718.5 2009 183.1 176.1 178.2 175.7 180.4 179.8 197.3 195.0 174.1 1,639.7 % change (10.4%) 6.3% (3.4%) (4.0%) (4.2%) (5.0%) 6.1% (7.0%) (16.2%) (4.6%)
Source: Malaysian Palm Oil Board
Palm oil production in Malaysia (% change y-o-y)

14.0% 30.0% 12.0% 25.0% 10.0% 20.0% 15.0% 10.0% 5.0% 0.0% (5.0%) (10.0%) Jan 08 Feb Mar Apr May Jun 08 08 08 08 08 Jul Aug Sep Oct Nov Dec 08 08 08 08 08 08 Jan Feb Mar Apr May Jun 09 09 09 09 09 09 Jul 09 8.0% 6.0% 4.0% 2.0% 0.0%
Palm oil production in Indonesia (% change y-o-y)
Jan-Mar 08
Apr-Jun 08
Jul-Sep 08
Oct-Dec 08
Jan-Mar 09
Apr-Jun 09
% change y-o-y Source: Broker Research
Source: Malaysian Palm Oil Board
% y-o-y increase
Absolute production in Indonesia has trended up in 2009. This was mainly due to an increase in mature planted area. Productivity in terms of yield has been weakening in Indonesia. Palm oil stocks are lower than normal in the region. Malaysian palm oil stocks were 33.0% lower in June than in the corresponding months of the previous year. This was the worst monthly drop since 2007. Inventories are also currently at the lowest levels since January 2008.
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Palm oil stocks in Malaysia (% change y-o-y)

90.0% 70.0% 50.0% 30.0% 10.0% (10.0%) (30.0%) (50.0%)
Jan Feb Mar Apr May Jun 08 08 08 08 08 08 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun 08 08 08 08 08 08 09 09 09 09 09 09 Jul 09
Palm oil stocks in Indonesia (% change y-o-y)

50.0%
30.0%
10.0%
(10.0%)
(30.0%) Jan-Mar 08 Apr-Jun 08 Jul-Sep 08 Oct-Dec 08 Jan-Mar 09 Apr-Jun 09
% change y-o-y Source: Malaysian Palm Oil Board Source: Broker Research
% change y-o-y
Lower Stock/Usage ratios expected to affect supply and pricing During recent months, stock/usage ratios have been relatively low in the region when compared to their historical levels. This trend is expected to continue going forward. One reason for the lower stock/usage ratios that are currently prevailing is due to the yield normalization phenomenon that usually occurs the year after a bumper crop - in this case 2008. But the situation has been made worse by the poor weather conditions that have affected harvests, and pollination. This situation is expected to keep CPO prices in the upper bracket for the short term. CPO supply, however, is expected to rebound in 2010 and 2011 owing to an increase in mature hectarage in Indonesia, as well as in other non-dominant CPO producing nations such as Papua New Guinea.
CPO Stock/Usage ratio

20.0% 19.0% 18.0% 17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 16.1% 16.8% 15.6% 15.7% 14.3% 15.8% 15.2% 15.9% 15.7% 13.8% 18.5% 19.5% 19.0%
13.5% 13.0%
Stock/usage ratio
Source: Broker Research
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Demand for palm oil India and China are the leaders
India and China together accounted for over 36.0% of palm oil imports during the year ended October 2009. Both nations have large, growing populations, and imports have grown apace over the years. The increase in per capita incomes in these nations, urbanization, as well as the gradual abolishment of protectionary tariffs and other import restrictions have played their part in the rising demand for palm oil. The drought in northeast China and the delayed monsoons in India have affected soybean production in these countries in 2009. This translates into increased edible oil imports, of which palm oil has traditionally had a significant share.
Palm oil imports: 2005 - 2009 ('000 MT)
8000.0
6,300.0
6000.0
4,975.0 3,800.0 2,899.0
5,850.0 5,139.0 4,950.0 5,223.0
4000.0
2000.0
0.0 2006
Source: USDA
2007
India China
2008
2009
CPO demand growth in India and China

40.0% 30.0% 20.0% 10.0% 0.0% (10.0%) (20.0%) 2004-05 2005-06 2006-07
India
2007-08
China
2008-09E
2009-10E
Stockpiling in China The Chinese government has been stockpiling food since the start of 2009. One of the primary reasons behind this is the concern that another food crisis like the one in 2008 would cause severe social unrest in the country. The Chinese stockpiling of palm oil, soybeans, and corn has been recorded by the USDA and industry experts such as Oil World, with the primary buyer being COFCO, the state owned agency responsible for food purchases.
Indian liberalization India completely liberalized palm oil imports during 2008, in what was the culmination of a long process of gradual liberalization that began more than a decade ago. The 80.0% tariff that was previously in place was imposed to protect Vanaspati, a local oilseed. The events that triggered the removal of the tariff in 2008 were the food crisis and the elections in the same year. Given the example set by its precedents, the current global recession has increased the likelihood of protectionary tariffs being imposed by nations to protect their domestic markets. But in the case of India and China, the reinstatement of palm oil tariffs seems unlikely. As a result of the food crisis that peaked in 2008, both nations may have a vested interest in allowing free trade of agriculture. Reimposition of palm oil tariffs would drive up the cost of living at a time when food prices remain elevated.
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The relationship between CPO and crude oil

The demand for alternative fuels has historically moved in tandem with the price of crude oil, as alternative sources of energy (solar energy, wind energy, biofuels and others), and the costs associated with producing it become more viable and attractive during periods when conventional energy is priced at a premium. Over the period between mid-2006 to mid-2008, when biodiesel came into play and when crude oil prices surged from USD 60.0/bbl to USD 145.0/bbl, the CPO price in USD was supported at an average of 10.0x crude oil prices, which is also the rough breakeven formula, including government subsidies and incentives, for CPO biodiesel producers. This formula or support level for CPO was broken in late 2008, when the ratio fell to a low of 6.0x due to the fall in crude oil prices, rising CPO inventories, large incidences of defaults, and the weakening economic conditions during the period. However, CPO has traded above this average ratio of 10.0x from January May 2009, largely due to declining inventories and supply disruptions. CPO is currently trading at 9.0x, or slightly below the average ratio as the 3rd quarter is the peak production period. The support level for CPO (USD/MT) is expected to be at least 10.0x crude oil (USD/bbl), when crude oil prices are stable, and when economies are on a stronger footing. With many research houses forecasting a gradual global economic recovery beginning sometime in Q4 2009 and into 2010, and with crude oil forecasts projected to be in the range between USD 65.0 and USD 72.0 by 2010, this would imply CPO price in the range of USD 650.0-700.0/MT.
CPO versus crude oil prices (USD/MT)
1600.0 1400.0 1200.0 1000.0 800.0 600.0 400.0 200.0 0.0 Jan01 Jul01 Jan02 Jul02 Jan03 Jul03 Jan04 Jul04 Jan05
Crude Oil
Jul05
Jan06
Jul06
Jan07
Jul07
Jan08
Jul08
Jan09
Jul09
Source: Bloomberg
Crude Palm Oil
Ratio of CPO price (USD/MT) to crude oil price (USD/bbl)

1600.0 1400.0 1200.0 1000.0 800.0 600.0 400.0 200.0 0.0 Jan01 Jul01 Jan02 Jul02 Jan03 Jul03 Jan04 Jul04 Jan05 Jul05 Jan06 Jul06 Jan07 Jul07 Jan08 Jul08 Jan09 Jul09
Mean: 10.0x
25.0
20.0
15.0
10.0
5.0
0.0
Source: Bloomberg
Crude Palm Oil (LHS)
Ratio of CPO to Crude Oil (RHS)
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El Nio and its impact on CPO production

The phenomenon The scientific use of the term El Nio refers to the warm phase of a large warm/cold oscillation in the water and atmosphere of the Pacific region. El Nio was identified in the early 1990s, and its basic consequence is exceptionally dry weather. The complete phenomenon is known as El Nio/ Southern Oscillation (ENSO). The warm El Nio phase typically lasts for eight to 10 months. The entire ENSO cycle usually lasts three to seven years. There is high variability in the strength and timing of the El Nio effect.
El Nio and CPO production Hotter temperatures and reduced precipitation affects oil Palms by reducing the proportion of female flowers that yield more oil. There have been three El Nio episodes in the past three decades, in 1983, 1997, and 2006. All three incidences of the El Nio effect have had a deep-seated effect on CPO production, resulting in an average drop of 3.0% in production. In each case, it was also observed that the market reacted to the fall in production, where the average price of CPO in the incidence year rose by 43.0%. Below is an analysis of CPO production and prices, as well as overall CPO yields during El Nio years.
CPO production growth and prices during El Nio incidence years
20.0% 1,200.0 1,000.0 800.0 10.0% 600.0 5.0% 400.0 0.0% 200.0 82/83 84/85 86/87 88/89 90/91 92/93 94/95 96/97 98/99 00/01 02/03 04/05 06/07 -
15.0%
(5.0%)
CPO Production Growth (%) Dark blue bars indicate El Nio incidence years. Source: Broker Research
CPO Price (USD/tonne)
Overall CPO yield during El Nio incidence years (tonnes/hectare)

4.0 3.8 3.6 3.4 3.2 3.0 2.8 2.6 2.4 2.2
81/82 83/84 85/86 87/88 89/90 91/92 93/94 95/96 97/98 99/00 01/02 03/04 05/06 07/08
Overall CPO Yield Black arrows indicate El Nio incidence years. Source: Broker Research
Average
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The above table charts the overall CPO yield over the last 27 years to show the drop in yields during years that have had episodes of El Nio. Overall CPO yield is calculated by multiplying FFB yield (Fresh Fruit Bunches, used to derive CPO, harvested per hectare) with CPO yield (CPO yield per hectare of plantation), thus eliminating the variation brought about by the increase in the planted area over the period. The mean of the data set is 3.24 tonnes per hectare and the standard deviation is 0.22. The yield fell 0.39 tonnes per hectare (two standard deviations from the mean) in 1982-83, which was the worst case of El Nios disruption of productivity. In 1997-98, the impact was one standard deviation below the mean. However, the impact was the mildest in 2005-06, when the y-o-y change stood at 0.22 tonnes per hectare, whereas the yield continued to be one standard deviation above the mean. A review of the data highlights the impact of incidences of El Nio, followed by decline in production growth, resulting in major price fluctuations in the market. Even in the most recent and mildest case, which occurred in the 2006-07 period, the y-o-y drop in yield was around a quarter of a tonne per hectare, which translates into a 7.0% drop in production, assuming that the planted area remains the same.
Meteorological indicators of El Nio

Occurrences of El Nio have typically been preceded by changes in air pressure and changes in weather. The three main indicators of the phenomenon are1. 2. 3. Negative shifts in the Southern Oscillation Index, which indicates variations in air pressure in the Pacific region Greater or abnormal degrees of cloudiness in the Pacific region Unusually warm temperatures along the Pacific coast
The Malaysian Natural Resources and Environment Ministry, as well as the Australian Bureau of Meteorology have issued El Nio alerts on the basis of data supporting the above indicators. Both agencies expect El Nio to set in sometime during 2009. The International Research Institute for Climate and Society (IRI) has predicted the possibility of a mild to moderate El Nio to be 85.0% for the months of September 2009 through February 2010.
Major El Nio Episodes
35 25 15 5 -5 -15 -25 -35 -45
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
Southern Oscillation Index

Source: Australian Bureau of Meteorology
Conclusion
The onset of El Nio in the near future is expected, but as yet uncertain. If it does occur, however, it is expected to have an adverse effect on CPO production, especially in South-East Asia. Though it is not the only determining factor, uncertainty and speculation about CPO production are expected to maintain or push up CPO prices in the near term. Given the rising demand for palm oil and its derivatives, any decline in CPO production due to adverse weather conditions will exert an upward pressure on CPO prices.
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Soya bean industry

Soya bean, or Soybean, is the one of the worlds most widely consumed oilseeds; with soya bean oil (SBO) being the second most widely consumed vegetable oil after palm oil. Soya bean production in 2009 accounted for 53.0% of the worlds total oilseed production. Soya bean and soya oil consumption has also dominated the worlds vegetable oil and protein meal consumption, making soya bean the most widely crushed oilseed in the market. Soya bean, like most other oilseeds, have very little value as standalone commodities. The greatest demand for the oilseed comes from the crushing industry to produce two main end products meal and oil, which are sold in separate markets. Only a very small part of all soya beans produced are used just as soya beans.
Soya meal and soya oil

Soya meal is primarily used for the livestock industry because of its high protein content, while soya oil is sold mainly in the consumer market and is used in the production of cooking oil, biodiesel, and related derivatives. The amount of meal and oil produced from soya bean depends on their respective yields. Roughly, a unit of soya bean crop yields 82.0% of soya meal, and 18.0% of soya oil. The storage life of soya beans and end products differ, with raw soya bean having a longer shelf life than its crushed end products. Logistically, it is easier to ship raw soya beans rather than soya meal and soya oil. As a result, most soya bean consuming regions have crushing capacities at the destination rather than the source of soya bean supply.
Production and trade flow

Soya bean is one of the most widely grown agricultural crops across the world. USA, Brazil, and Argentina are the key crop growing regions, and account for 89.0% of the worlds total exports, while the main consumers are China, USA, and Europe. China alone makes up 54.0% of the worlds total imports. Thus, the trade flows between the top exporters and China accounts for the bulk of the worlds total trade in soya beans. The top soya bean producing countries include the USA, Brazil, Argentina, and China. In the year ended September 2009, soya bean output from these four countries reached 185.4 million MT, making up 88.0% of the total global soya bean production. USA leads the world in soya bean production, while China is ranked at 4th with only a 7.6% share in global production. Growth of soya bean production has been quite stable for the USA and China over the past few years, while it has jumped significantly for Brazil and Argentina. In line with growth in production, exports from Brazil and Argentina have dramatically increased in the past few years. In 1995, the US soya bean export share was 73.0%, but it fell to 40.0% in 2008. At the same time, Brazil and Argentinas market share in the world soya bean market increased from 11.0% and 6.0% in 1995 to 32.0% and 17.0% respectively, in 2008.
Soya bean: World Production - 2009 ('000 MT, % of total)
Argentina, 32,000.0, 15.2% China, 15,500.0, 7.4% Brazil, 57,000.0, 27.1% India, 9,100.0, 4.3% Other, 9,090.0, 4.3% Paraguay, 3,900.0, 1.9% Canada, 3,300.0, 1.6% USA, 80,749.0, 38.3% Source: USDA Source: USDA
Soya bean production 2006 - 2009 ('000 MT)

90000.0
83,507.0 87,001.0 80,749.0 72,859.0 61,000.0
75000.0 60000.0
59,000.0 48,800.0
57,000.0
57,000.0
45000.0 30000.0
46,200.0
40,500.0 32,000.0
15000.0 0.0
2006
2007
USA Brazil
2008
Argentina
2009
China has cemented its place as the worlds leading soya bean importer. Its imports have grown nearly 46 times from 0.8 million MT in 1994, to 38.1 million MT in 2009. Chinas soya bean shortage has increased significantly over the years, from almost nil in 1991 to almost 38.0 million MT in 2009, making China the most important market for key exporters such as USA, Brazil, and Argentina. Soya bean shortages for other major importers such as Japan, the EU, and Mexico have remained quite stable in the past, consequently these regions are not likely to increase their import share in the future.
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Market dynamics in relation to China

The demand for the soya bean value chain has shown a steady increase over the past few years. With increased consumption and demand for commodities, demand is likely to remain stable for the foreseeable future. Price fluctuations and volatility are driven mostly by supply fluctuations rather than demand drivers, as the latter is relatively more stable. The supply dynamics for soya meal and soya bean oil depends on the total amount that is crushed, which may or may not vary in accordance with production. For instance, soya bean crushers may decide to store soya bean and reduce crushing if the supply is plentiful, but margins are low. This would lead to a lower supply of soya meal and soya oil to satisfy demand, thereby putting pressure on prices. This results in an increase in margins, and a consequent increase in supply, thereby easing the pressure on prices.
Global soya bean crushing by region - 2009 ('000 MT, % of total) Global soya bean crushing by region - 2006 ('000 MT, % of total)
Argentina, 31,725.0, 16.5% Brazil, 31,400.0, 16.4%
Argentina, 31,888.0, 17.2%
Brazil, 28,285.0, 15.3%
China, 41,035.0, 21.4%
EU-27, 12,700.0, 6.6% India, 7,500.0, 3.9%
EU-27, 13,670.0, China, 34,500.0, 18.6% India, 5,990.0, 3.2% 7.4%
Others, 22,389.0, 11.7% United States, 45,234.0, 23.6% Source: USDA Source: USDA United States, 47,324.0, 25.6%
Others, 23,531.0, 12.7%
Soya oil and soya meal have different dynamics in relation to their own fundamentals. While soya oil competes globally as edible oil with palm oil, rapeseed, and sunflower oil, among others, soya meal is primarily a product for the feed industry, competing with other feed ingredients such as corn and other coarse grains. Moreover, crushing may not be able to satisfy the domestic demand for either or both commodities, thereby impacting their prices differently. In China, for instance, crushed soya beans are generally adequate to satisfy the demand for soya meal, but the nation still has to import a significant proportion of its soy oil consumption. As a result the availability of imports of soya bean may also affect soya oil prices, whose movement may be different to that of soya meal prices that are driven by local crushing intensity. The prices of soya beans and its end products in China behave differently from those in the global markets, mainly because of government intervention in the trade markets. Chinese authorities tend to control the pricing of raw soya beans and those of end market consumer products, forcing process to move differently from those of global markets. As a result, margins of Chinese do not move in sync with global crushing margins. Complementarity of US and South American soya bean exports to China South America and the US are thought to be complementary soya bean suppliers to China due to their different harvest seasons. The harvest season for US soya bean is October and November, while for South America it is during March and April. Soya bean stocks reach their highest levels just after their respective harvest seasons. Therefore the soya bean trade in the Chinese import market is divided into two periods. During June-October, South America exports freshly harvested soya beans to China, incurring marginal storage costs. On the other hand soya beans exported from the US are more expensive due to higher storage costs resulting from storing the beans well after the harvest season. Thus, the South American exports to have a price advantage vis-vis US soya bean exports. The situation is reversed during the November-May import period in China, which is just after the US harvest, making the South American soya beans more expensive due to storage costs. These trends imply that South America and the USA are seasonal complementary soya bean suppliers to China, with each dominating during different halves of the year. Conversely, this also indicates that China may have more bargaining power over both parties with respect to prices. Any increase in export prices from one party could result in increased imports from the other. To balance the situation, key Chinese soya bean crushers like Wilmar typically rely on more than one soya bean supplying country to reduce supply risk.
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Soya bean crushing Current scenario

Soya bean prices corrected during the months of September and October of 2009 due to indications of record production in the USA later this year, and a good harvest in the South American regions next year. However, since soya bean supply is still not abundant, and with players postponing crushing to take advantage of lower soya bean prices later on, the crushed soya bean available to satisfy meal demand is currently limited. This has lead to relatively strong meal prices, which have resulted in strong crushing margins of late. The trend is expected to continue for another two to three months, until crushing volumes pick up to put downward pressure on soya meal prices. Crushing margins are dependant on scale, timing, and volatility In theory, crushing margins are simply the difference between end-product prices and input raw material purchase prices. The calculation of margins depends on the yield of oil and meal from crushing a unit quantity of soya bean. Generally, one metric tonne of soya bean yields around 0.18 MT of soya oil (18% yield) and 0.82 MT (82% yield) of soy meal. However, these may vary depending on the crop, region, and timing of harvest, among others. The actual yield of crude oil and meal per tonne of raw soya beans is determined by the soya bean protein and oil content, along with processing conditions and efficiencies. The processing cost is not significant for calculating margins. Margins are dependant on prices, which in turn vary according to the supply dynamics of the value chain. There is a positive spread if the changes in input prices are higher than changes in end-product prices. Changes in prices for end-products and raw materials will be different as crushing utilization keeps on changing. Raw soya bean and soya meal/oil prices may even move in opposite directions - during periods when supply is high, such as immediately after the harvest period, and crushing utilization is low, due to the lag in crushing the newly harvested crop. Soya bean and oilseed crushers may also artificially drive up endproduct prices, and consequently margins, by crushing lower quantities during periods when supply is high.
Demand Side Factors
Factors affecting end meal/oil prices
Affects crushing margins
Affects crushing intensity
Affects demand for raw soya bean
Affects input prices
Soya bean supply
Affects raw soya bean price
Affects crushing intensity
Affects soya meal/oil supply
Affects soya meal/oil prices
Affects crushing margins
Supply Side Factors
Margins and crushing intensity The incentive to crush soya bean at full capacity is more when margins are greater. If the margin decreases or becomes negative, the crushing continues at a slower pace as the incentive to crush is lower. As a result, as crushing margins increase, there is increased demand for soya beans, and this leads to gradually firming prices of soya bean. On the flip side, when margins start decreasing, there is a fall in demand for soya bean, resulting in softening of prices. The correlation between meal, oil, and raw soya beans is not perfect. Crushing plants maintain seed inventory for crushing based on their holding capacity and strategy. Some plants may hold inventory to last several months, while some may hold a few weeks of inventory at any given time. Crushing intensity can be driven by increased demand for either soya meal, or oil. Crushers may increase intensity even if the demand for a particular product, either meal or oil, is low or flat, but demand for the other commodity is high. When crushing margins start increasing due to increased demand for oil or meal, companies with large inventories can crush from stock rather than purchasing the raw material from the spot market. As a result, rising margins do not always translate to an immediate gain in soya bean spot prices.
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Similarly, the variation in crushing utilization due to supply and prices of raw materials also affects the margins of crushing plants. The supply of raw soya beans affects the amount available for crushers, thereby affecting the supplied quantity of meals and oils to the consumption markets. In conclusion, profitability in the soya bean crushing sector is basically a play on margins, which depend on the supply of raw material as well as demand for the end-products. Crushers try to lock in margins by taking up hedging positions complementing their production strategy. But since the buying of soya bean is a continuous process which varies depending on the prevailing market strategy of either crushing more or less, it is not possible to achieve a perfect hedge. Also, processors cannot completely control margins as there are a large number of processors, and the industry is very competitive.
China crushing margins need not move in line with global crushing margins Margins for global soya bean crushers are generally higher around July-September, the harvest season for the US and South American regions. However, margins are lowest for Chinese crushers during this period, and peak during the period between October and February. At the same time, global soya bean crushing margins are low when Chinese margins are at its peak. A key factor contributing to this effect is the government intervention in raw material and end-product pricing in China, which force prices to move differently.
Seasonality in soya bean crushing margins - USA and China

USD/MT
160.0
RMB/MT USA peaks: June, September China peaks: October, February 1,000.0 800.0 600.0
140.0
120.0
400.0
100.0
200.0 0.0 (200.0) (400.0)
80.0
60.0
40.0
(600.0)
20.0
(800.0) (1,000.0)
Jan03 May03 Sep03 Jan04 May04 Sep04 Jan05 May05 Sep05 Jan06 May06 Sep06 Jan07 May07 Sep07 Jan08 May08 Sep08 Jan09 May09 Sep09
0.0
USA Soya bean Crush Margins (LHS)

Source: Bloomberg
China Soya bean crush margins (RHS)
Market view places a premium on intelligence and size Players in the crushing industry take a fundamental view on prices for both raw soya beans as well as soya meal and soya oil prices. However, very few market players have the scale and market significance to effectively determine the drivers for price movements in the markets. Also, with scale, the ability to vary crushing intensity and store raw soya beans increases, which is an important factor in capturing the spread from the market. For this reason, larger market players are expected to deliver better margins as compared the smaller ones who have less visibility.
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Short term outlook

The slowdown in soybean production because of droughts in South American regions had strengthened soybean prices since the beginning of this year. Currently, indications of a record US crop, improvements in South American production including favorable El Nio patterns for the region, and the destocking of soya bean in Chinese markets have led to pressure on soybean prices over the past few months. The corresponding fall in soy meal and soy oil prices has been lower on decreased crushed soybean supplies. As a result, crushing margins have picked up significantly in the past few months. Given the possibility of falling soybean prices, crushers may postpone near-term purchases; consequently, diminished soy meal and soy oil supplies due to lower crushing supplies may lead to stronger near term prices. As a result, near-term crushing margins are likely to remain strong. Soya bean prices strengthened early in 2009 due to the drought, and export tax policies in Argentina Soybean production in 2009 has been much lower in the past two years due to deficit production in Brazil and Argentina, which saw droughts earlier this year. The Argentinean government imposed an export tax on key commodities such as soya bean and corn, which lead to lower acreage by farmers, resulting in lower production and export volumes. As a result, in spite of a record soya bean crop in the USA this year, overall supply to world markets has lagged on a year-on-year basis, which strengthened soya bean prices during the early part of 2009. Record Chinese imports due to government pricing policy Soya bean imports from China have touched record levels since the end of 2008 and through the first half of 2009 due to efforts made by the Chinese government to keep domestic prices artificially high. The move was made in an effort to keep soya bean planters from moving away from soya bean cultivation.
China - Soya bean imports

6.0 5.0 4.0 3.0 2.0 1.0 0.0 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 % growth May-09 Jun-09 Jul-09 Aug-09 60.0% 40.0% 20.0% 0.0% (20.0%) (40.0%) (60.0%)
Imports (million MT)

Recent correction in soya bean prices Soya bean prices have corrected in the past few months following indications of favorable production in key regions of Brazil and Argentina. Acreage data indicates a strong probability of a bumper harvest in the US, while El Nio weather patterns favor crop plantation in South American regions, indicating strong production next year. The impending rise in soya bean production has already been factored in the futures markets, where it is actively traded, leading to the recent correction in soya bean prices.
Chinese de-stocking may exert further pressure on soya bean prices The Chinese government has tried to auction its excess inventory of soya beans a few times in the past few months. However, Chinas domestic soya bean prices are higher than global prices, making the domestic inventory less attractive. According to some market data sources, the Chinese government is expected to offer subsidies to domestic crushers as it looks to unload its soya bean inventory before the US harvest. This may make buying from the domestic market more attractive to crushers, thereby reducing the demand for global soya bean supplies. Additional supply of soya bean could put further pressure on prices.
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Conclusion The shortage in soya bean supply has lead to lower supplies of soya meal and soya oil, resulting in increased spread, and the strengthening of crushing margins owing to strong soya meal and soya oil prices. Although crushing margins have been strong over the last couple of months, crushing intensity is low due to lower availability of soya bean for processing, keeping in mind that fresh stock from the US harvest will not reach the markets until December -January. Since fresh stock will not be available before December, the outlook on soya meal and soya oil will remain tight. In addition, given the bearish outlook on soya bean prices, crushers may postpone purchases to take advantage of lower prices later on. This would put further pressure on soya meal and soya oil supplies, leading to higher prices. Also, the probable onset of El Nio could impact palm oil production, increasing the demand for soya oil, which is a close substitute. Ultimately, near-term crushing margins are likely to remain strong until supply of soya meal and soya oil pick up, aided by strong soya bean production.
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Edible oil sector: Long-term outlook

The long-term dynamics for the edible oil sector are predominantly driven by 1. 2. 3. Population Economic growth, and Energy prices
High prices may drive an increase in output in the edible oil sector; but an increase in supply is unlikely to reduce prices as significantly as in the past because of the potential biodiesel market. Due to the strong correlation between CPO and crude oil, the main price determinant in this situation is the relative price of crude oil. Vegetable oils are more likely to become cheaper (for the food industry) if there is a drop in crude oil prices, than if there is drop in demand, or a rise in supply. The current demand growth for food and oleochemicals is around 3.0-4.0% a year, and is driven mainly by income and population growth. However, given the limited supply of land available for cultivation, the ability to meet this demand over the long term may be limited. As a result, the prices of oils and fats may break away from the constraints of relative crude oil pricing over a long-term horizon of around 10 or more years, depending on the scale of demand growth, the cultivated acreage, and improvements in productivity. Edible oil and overall food price re-flation From 1950 until just recently, demand growth in agricultural commodities did not keep up with the ability of farmers to produce. The result was a long-term decline in inflation-adjusted food prices. Together with growing per capita income around the world, these declines in real prices lead to the affordability of sufficient nutrition as well as a more varied diet. This gradual increase in overall demand for grains and oilseeds, combined with a decline in investment in agricultural productivity lead to a reversal in the decline in real food prices during the period after 2003. Yet, adjusted for inflation, food prices are still close to historical lows. These factors coupled with structural trends in demand, supply, and demographic dynamics would suggest that the correction that is witnessed in food prices could be a near-term event, and once food prices have adjusted, food prices will continue its multiyear agflation.
Long-term demand and supply With annual income levels having reached USD 5,000.0-10,000.0 range globally (adjusted for purchasing power parity), food consumption levels have grown disproportionately. India, and China, with their large populations, increased urbanization, and higher incomes are pushing up the global demand for food. On the supply side, research forecasts suggest that incremental production will continue to grow slower than the past two decades. Barring a major move into GMO crops, this demand supply equilibrium is expected to drive up yields significantly, and food prices in nominal terms are likely to be strong over the next decade.
Biofuels a note
The application of vegetable oils, including palm oil, as a feedstock for biofuels has lead it to become an important contributor to increase in marginal demand, and consequently, a driver of prices. Until 2005-06, energy prices affected agricultural primarily by way of influencing production and input costs, particularly fertilizer and diesel prices. But due to the increasing correlation between the energy and commodity markets, fuel prices influence production costs as well as crop demand. An Ethanol plants ability to pay for corn, and a biodiesel plants ability to purchase vegetable oil are directly influenced by the prices of crude oil and other fossil fuels. Though traditionally the pricing of vegetable oils were determined by mutually independent factors like the weather in different regions of the world, and import and export taxes, the prices of the various edible oils have displayed an increasing degree of correlation over the past 24-30 months. However the technology behind extracting biofuels from vegetables and vegetable oils is still in its nascent stages, and presently, there is much speculation as to what the industry will ultimately turn to for its feedstock/technology/end product of choice. At the same time, there is a consensus that biofuels will be a key component in meeting energy needs for transport in the future. In the longer term, the success of biofuels depends on petroleum based fuel prices as well as three other variables that directly affect the profitability and the environmental impact of biofuel. The three factors are 1. 2. 3. Cost and availability of feedstock Government regulation, and Conversion technologies
All of the above are currently in a state of flux, so any investment today will ultimately also depend on how these factors, which are also interrelated, evolve.
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Feedstock costs and consequences Feedstock costs, which accounts for between 50.0-80.0% of biofuel production costs, vary significantly by region, and so its price volatility has a marked impact on the producers returns. When the feedstock is fungible with food, as in the case of corn and vegetable oils, the demand and supply dynamics of biofuel producers may not be the only factors affecting prices. Government regulations, export-import trade flows, local demand and supply dynamics, and famines also affect prices. As a result, using food for feedstock is a potentially sensitive issue, especially in cases where there is an unprecedented rise in prices. In addition to this, environmental concerns by developed nations, who have raised the issue of the destruction of rainforests for cultivation, has lead to the use of non-food, fast growing crops like Jatropha, that are capable of growing well in relatively arid lands. But on the other hand, the environmental impact resulting from the cultivation of such fast growing trees and plants is as yet unknown.
Government regulations Subsidies, tariffs, research grants, and mandates have helped drive both demand as well as profitability of the biofuel industry. Government policies have so far been positive for the biofuel sector, but are evolving and likely to change, thereby making regulatory changes a major risk factor for the industry. Since vegetables oils account for a majority of productions costs, biodiesel margins are very dependant on subsidy policies and feedstock pricing, particularly as supply is expected to exceed demand in the near term.
Conversion technologies In the commodities industries, the last entrant usually has the advantage of access to the newest technologies in an industry that is driven by the lowest cost of production. However, players who can sign up feedstock supply contracts and end market contracts may derive the benefits of an early start as land and other resources are limited, especially considering that feedstock costs vary greatly by geography, making some regions more viable for biofuel production than others. New conversion technologies will significantly increase production costs, but ultimately the high initial capital investment is offset by the lower costs of the feedstock that replaces the conventional ones. Given the number of options available to biofuel manufacturers, in time they are expected to diversify in terms of geographies and technologies and move towards greater vertical integration.
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Recent financial analysis

Wilmar International posted strong third quarter results on the back of organic growth in key segments as well as exceptional gains resulting from a 1.61% stake sale of its China entity to the Kuok Group. Net income was up 35.3% q-o-q, while Net income for the 9 month period ended September 30, 2009 was up 24.4% as compared to the corresponding period during 2008. Q3 is historically a strong quarter for the Group. Net income excluding the exceptional gain from the share sale stood at USD 486.0 million, up from USD 482.6 million during Q3 2008. Interest expense dropped significantly to USD 1.3 million in Q3 2009 from USD 97.6 million during Q3 2008, partly due to the reversal of cumulative redemption interest on convertible bonds provided in the first two quarters of 2009. The provision was no longer considered necessary as Wilmars share price was above the conversion price.
Segment Analysis
Merchandising & processing Palm and laurics Revenue for the current quarter was stood at USD 3.5 billion representing a 30.0% decline when compared to the same period last year. This was mainly due to lower demand for agricultural commodities during the period. The segment also witnessed tighter margins due to increased competition from other players as a result of the weakening demand. Profit before tax for the quarter decreased by 36.7% as compared Q3 2008. Despite the Groups weaker performance during the quarter, pretax profit for 9M 2009 increased by 11.0% or USD 56.1 million as a result of the strong performance of the segment during the first half of the year. Merchandising & processing Oilseeds and grains A 12.0% increase in sales volume during the quarter was offset by lower commodity prices. As a result, revenue for Q3 2009 fell 13.0% to USD 1.9 billion. Pretax profit for the 9M 2009 also fell 24.0% to USD 41.7 million due to tighter margins mainly due to forex gains that were recorded for the same period during 2008. Consumer products The segment witnessed higher sales volumes, as well as improving margins during the quarter, though segment growth may be largely attributed to improved margins. Revenue for the quarter was down 14.0% at USD 1.0 billion. The Group instituted a price cut of between 8.0-16.0% during the quarter owing to falling commodity prices. Despite the lower revenue, pretax profit for the period was 40.0% higher at USD 29.1 million mainly due to the fact that margins in China were affected during the corresponding period in 2008, as a result rising raw material prices and price intervention measures taken by the Chinese government. Though revenues were down 26.0% for 9M 2009, pretax profits rose by more than 2.5x, from USD 49.0 million to USD 169.0 million as a result of sharp improvements in segment margins when compared to 9M 2008. Plantations and palm oil mills Revenues for the quarter ended September 2009 was down 7.8%, at USD 292.3 million, due to lower average CPO prices. At the same time, the segments pretax profit for the quarter rose sharply by 47.9% to USD 111.4 million. The stronger profit for the segment was mainly due to higher production volumes, lower production cost per MT, and some forward sales at higher prices. Higher production volumes due to maturing hectarage resulted in a 10.5% rise in FFB production as compared to Q3 2008. Revenue for 9M 2009 stood at USD 792.7 million, while pretax profits rose by 14.4% over the same period last year boosted by strong performances in Q2 and Q3 2009.
Liquidity and gearing

Wilmar has over USD 15.7 billion in credit facilities, of which USD 8.6 billion or 55.0% were utilized at September 30, 2009, as compared to 47.0% at the end of 2008. The total liquidity available at September 30, 2009, including unutilized credit facilities and free cash available, stood at USD 8.5 billion, up from USD 7.2 billion in 2008. Wilmars debt to equity ratio stood at 0.3x for the period ended September 30, 2009, up from 0.2x for the year ended December 31, 2008. Wilmars interest coverage ratio improved during 9M 2009, to 17.4x , from 6.2x for the year ended December 31, 2008. This was partly due to the reversal of redemption interest on convertible bonds that was provided during the first half of the year. A large proportion of Wilmars borrowings is used to finance working capital requirements, mainly inventories and receivables. This is reflected by the fact that 86.1% of Wilmars outstanding debt consists of short-term debt. The level of working capital required varies with commodity prices and sales volumes.
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Risk factors
Delay/Expiry of China Listing
A weak IPO market in China and Hong Kong has been cited as the reason for the delay Wilmars China listing. Its stock witnessed a relative weakness in price following the announcement. Wilmar has a January 2010 deadline by which it has to list its business, failing which the Group will have to restart the process. Any direction regarding the listing is expected to be a key stock catalyst in the near term.
Biofuel demand and crude oil prices

Wilmar currently enjoys strong biodiesel profitability. On this front, risks include reduced government support in the EU for biofuel, and a significant drop in crude oil prices.
El Nio
The bullish outlook on CPO prices in the industry is partly based on decreasing production resulting from an episode of the El Nio phenomenon. Forecasted profitability and margins may therefore be affected if it does not occur. On the other hand, the onset of El Nio could lead to an increase in the demand for soya oil, which is a close substitute for palm oil, which could ultimately benefit soya bean crushers and refiners like Wilmar.
Regulatory risks concerning capacity expansion in China

The increased consumption and demand for soya bean has lead to various regulatory concerns over the past 2-3 years. Chinas National Development and Reforms Commission (NRDC) has highlighted the reliance on imports, system overcapacity, and the decreasing share of domestic players in crushing as key concerns for the industry. Measures proposed to counter these issues include (i) limiting overall capacity in the system at 75.0 million MT by 2010, and gradually reducing it to 65.0 million MT by 2012; (ii) promoting consolidation among domestic players, and (iii) discouraging any player from having more than 15.0% of total capacity. Wilmar would likely be affected if these proposed guidelines are enforced. The targeted consolidation among domestic players could result in greater competition for Wilmar. Moreover, estimates indicate that Wilmar already owns more than 15.0% of Chinas total crushing capacity, making it theoretically implausible for the Company to expand its soybean crushing capacity. However, Wilmar already has new licenses to build crushing capacity in China. Since Wilmar has had a longstanding presence in China and Chinas demand for soybean is strong, more capacity is expected to come online for Wilmar in the near term.
Government policies and tariffs

The Chinese and Indian governments may be keen to keep food inflation low, following the recent food crisis. This could lead to price controls on Wilmars products. In January 2008, the Chinese government imposed a price freeze on Wilmars cooking oil, which was later rescinded in December. Also, the global recession has increased the likelihood of the reinstatement of tariff barriers, especially in developing nations. The imposition of tariffs on Wilmars products could adversely affect imports by these nations.
Indonesias export tax on CPO

Indonesias prohibitive export tax on CPO is aimed at promoting stable domestic supply and prices. Currently, the impact on Wilmar is limited as it is a net buyer of CPO, and the bulk of its CPO produce is processed locally into refined products. However, if CPO production in Indonesia increases from maturing plantations and the development of existing unplanted land banks, Wilmar may become a net seller of CPO.
Fluctuation in raw material prices CPO and soya beans

Wilmars processing units are subjected to daily market price volatilities. The Group actively tries to mitigate this risk by hedging feedstock requirements. So far, Wilmar has maintained an impressive track record in the timely purchase of raw materials, occasionally returning extraordinarily high profit margins as a result.
Increased competition and capacity

ADM, Bunge, Cargill, and Dreyfus have announced oilseed processed capacity expansion regions in the USA. While this may not have a significant impact on processing margins in China, overall industry margins could witness pressure, particularly if less rational players enter the market and disrupt the balance between soya oil, meal, and soya bean prices.
Demand destruction in China

Currently, growth in oil consumption in China is one of the main drivers of Wilmars growth. If the Chinese economy slows down, there could be a significant slowdown in consumption of vegetable oil, and premium consumer packs, where Wilmar has a dominant market share.
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Trading risk
The Group also takes active commodity trading positions to hedge its raw material price risks as well as to realize opportunistic gains in price volatility. With Wilmar having historically posted substantial paper trade gains, as well as some losses, this component of its business operations adds a degree of uncertainty to earnings. However, the size and scale of Wilmars business enables it to maintain an extensive ground network that provides useful market intelligence to its trading unit, which may mitigate some of the trading risk.
Foreign exchange risk

Wilmars operations are widely exposed to fluctuations in currency exchange rates. Its Palm and Laurics costs are largely denominated in Renminbi, while sales are denominated in US Dollars. On the other hand, Wilmars revenues from the Oilseeds and Grains segment are denominated in Renminbi, while costs are incurred in US Dollars. This mismatch could potentially affect the Groups operating margins, especially if exchange rate volatility increases. Though forex risk is mitigated by extensive hedging instruments like forward contracts, it may be difficult to achieve perfect hedge.
Acquisitions, JVs and asset injection

Wilmar has plans to enhance growth through acquisitions and JVs, and these transactions may be accompanied by integration risks.
Natural disasters
Bad weather and crop disease, particularly if centered on Wilmars plantations, can be detrimental to productivity. Animal disease can impact demand for soya meal.
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Key investment highlights

Relatively resilient business model
Wilmars integrated agribusiness model partially insulates the business from sudden shocks in commodity prices. Its size and scale enables it to operate at significantly higher margins as compared to its peers, and extract additional margins at different levels of its value chain. It also gives the Group better pricing power and a vast intelligence network that enables it to time its purchases and take trading positions to its benefit.
Diversified revenue streams as well as market exposure

Wilmars core revenue is derived from a number of sources that include a combination of upstream, midstream, and downstream activities that collectively encompass the entire value chain of vegetable oil origination, processing and marketing. Wilmars market presence includes the USA and many developed countries in Europe, as well as the emerging markets of Asia and West Africa. This degree of diversification adds a level of stability to the business,
Current industry fundamentals represents a Best of both worlds scenario for Wilmar
Wilmars oil palm activities are concerned with the entire value chain of cultivation, processing, refining, and consumer packaging of palm oil products. With regard to soya bean and oilseeds, the Group is involved only in crushing refining, and other midstream/downstream activities. The outlook on the oil palm sector is positive, with CPO prices set to rise in the short-term. On the other hand, an increase in supply of soya bean due to bumper harvests in the US represents an opportunity for crushers like Wilmar to boost margins on the back of lower prices and sustained demand for soya bean and its derivatives.
Growth backed by strong fundamentals

Wilmars biggest markets are the emerging nations of south and south-east Asia, notably, China and India. Its growth prospects in these regions are backed by the strong demand for vegetable oils and other refined products. Both China and India are nations with growing populations, rising per capita income, and where urbanization is progressing at a rapid rate. All of this has contributed to them being among the largest consumers of oil palm and oilseed products. This upward trend, expected to continue in the foreseeable future, offers Wilmar the opportunity of expanding an already dominant market presence in these countries.
Significant scope for organic and inorganic expansion

Wilmar has a large sections of oil palm hectarage that are yet to mature or be developed, this provides significant scope for organic expansion as far its plantation business is concerned. Its mid-stream facilities already process much more than what is generated internally, so there does not seem to be an immediate need for expansion with regard to its processing and refining activities. The Group also has relatively moderate gearing, with a Debt/Equity ratio of 0.3x, indicating sufficient room for inorganic expansion through acquisitions.
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Valuation analysis
We have initiated our coverage of Wilmar International Ltd. with a Buy rating and a price target of SGD 7.22, which is 16.7x our forecasted 2010 EPS, or 12.7x 2010 EBITDA. Our valuation reflects the volume growth that we believe Wilmar will achieve over the course of the forecast period. We expect the Group to achieve our target valuation in the near to medium term. Potential price triggers, in our view, would be the announcement of the IPO date for Wilmars China business, as well as any definitive news regarding the probable onset of El Nio weather conditions at the end of the year. Public comparable analysis We have conducted a Public Comparable analysis as part of our valuation. Wilmars comparable set consists of South-east Asian players involved in one or more of upstream/midstream/downstream activities in the palm oil sector. Though Wilmar is expensive in relation to its peers, we believe that the relative valuation is justified owing to its unique business model. Wilmars combination of size, varied revenue streams, and vertical integration is relatively unmatched by any of peers. This premium is reflected in Wilmars current share price.
CY10E EV/EBITDA vs. CY08A-10E EBITDA CAGR
25.0%
Cheap
20.0%
Wilmar International
15.0%
Hap Seng Plantations
10.0%
Indofood Agri Resources Kuala Lumpur Kepong (KLK) IOI Corp.
5.0%
0.0%
2.0x 4.0x 6.0x 8.0x 10.0x
Astra Agro Sime Darby
Source: Reuters, Independent Research
12.0x
14.0x
16.0x
18.0x
(5.0%)
PP London Sumatra Indonesia
(10.0%)
Expensive
Discounted Cash Flow analysis As part of our valuation, we conducted a Discounted Cash Flow Analysis of Wilmar International based on the EBITDA Exit multiple method as well as the Perpetuity Growth method. Our two stage DCF analysis discounts cash flows for a further five periods beyond the financial models forecast horizon of 2014. Our main assumption for the period 2015-2019 is decelerating revenue growth from 14.0% in 2015 to 10.0% in 2019.
SGD 12.5 SGD 10.5 SGD 8.5 SGD 6.5 SGD 4.5 SGD 2.5 SGD 0.5
9.35
9.82 7.98 8.24 7.00
Valuation Method DCF (EBITDA) DCF (Perpetuity Growth) EV/EBITDA 2010 Price/Earnings 52-Week High/Low
Average Value Weight 8.26 7.68 5.82 6.37 4.63 30.0% 30.0% 20.0% 20.0% 0.0%
Target Price
7.18 Current Price SGD 6.32 5.55 4.50 3.67 2.26 DCF (EBITDA) DCF (Perpetuity Growth) EV/EBITDA 2010 Price/Earnings 52-Week High/Low
SGD 7.22
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Valuation EBITDA exit

Wilmar International Ltd. - DCF Analysis - EBITDA Exit Multiple
(in USD millions, except per share data) Quarter ended Discounted Cash Flow Analysis Sales EBITDA Less: Depreciation & Amortization EBIT Tax Rate Tax-effected EBIT Plus: Depreciation & Amortization Less: Minority Interest Less: Capital Expenditure Less: Changes to Working Capital Less: Changes in Other Items Unlevered Free Cash Flow Unlevered Free Cash Flow Growth Rate Current Share Price DCF Share Price % Premium/(Discount) $4.58 $5.97 30.3% EBITDA Exit Multiple method A Discounted Cash Flows Discount Rate 10.0% 10.5% 11.0% 11.5% 12.0% (2009-2018) $11,060.8 10,723.9 10,400.6 10,090.4 9,792.6 Net Debt Discount Rate 10.0% 10.5% 11.0% 11.5% 12.0% as of 09/30/09 $3,579.6 3,579.6 3,579.6 3,579.6 3,579.6 + B PV of Terminal Value as a Multiple of EBITDA 10.0x $33,383.6 31,867.3 30,426.2 29,056.4 27,753.9 10.5x $35,052.8 33,460.7 31,947.5 30,509.2 29,141.6 11.0x $36,722.0 35,054.0 33,468.9 31,962.0 30,529.3 10.0x $44,444.5 42,591.2 40,826.9 39,146.7 37,546.5 = C Enterprise Value 10.5x $46,113.7 44,184.6 42,348.2 40,599.6 38,934.2 Share Price 11.0x 4.7% 5.2% 5.7% 6.1% 6.6% 10.0x $6.24 $5.96 $5.69 $5.43 $5.19 10.5x $6.50 $6.20 $5.92 $5.65 $5.40 11.0x $6.75 $6.44 $6.15 $5.88 $5.61 11.0x $47,782.8 45,777.9 43,869.5 42,052.4 40,321.8 Equity Value 10.0x $40,864.8 39,011.6 37,247.2 35,567.1 33,966.8 10.5x $42,534.0 40,604.9 38,768.5 37,019.9 35,354.5 11.0x $44,203.2 42,198.3 40,289.9 38,472.8 36,742.2 12/31/09 $5,377.9 617.2 (60.8) 556.5 15.0% 473.0 60.8 (21.9) (242.2) 249.7 0.2 519.5 NA 2010 $25,448.6 2,987.9 (302.3) 2,685.6 15.0% 2,282.7 302.3 (87.7) (1,146.6) (549.0) 0.0 801.7 NA 2011 $30,524.3 3,330.9 (359.3) 2,971.6 15.0% 2,525.9 359.3 (87.7) (1,376.0) (855.7) 0.0 565.7 (29.4%) 2012 $36,622.7 3,829.2 (427.9) 3,401.3 15.0% 2,891.1 427.9 (87.7) (1,652.1) (906.6) (0.0) 672.6 18.9% 2013 $43,952.3 4,394.7 (510.5) 3,884.2 15.0% 3,301.6 510.5 (87.7) (1,984.6) (1,068.4) (0.0) 671.3 (0.2%) Fiscal Year ended December 31, 2014 $52,764.4 5,033.8 (609.8) 4,423.9 15.0% 3,760.3 609.8 (87.7) (2,385.6) (1,260.2) 0.0 636.6 (5.2%) 2015 $60,151.4 5,738.5 (695.2) 5,043.3 15.0% 4,286.8 695.2 (87.7) (1,203.0) (1,436.6) 0.0 2,254.6 254.2% 2016 $67,971.1 6,484.5 (785.6) 5,698.9 15.0% 4,844.0 785.6 (87.7) (1,019.6) (1,623.4) 0.0 2,899.0 28.6% 2017 $76,127.6 7,262.6 (879.9) 6,382.7 15.0% 5,425.3 879.9 (87.7) (761.3) (1,818.2) 0.0 3,638.0 25.5% 2018 $84,501.7 8,061.5 (976.7) 7,084.8 15.0% 6,022.1 976.7 (87.7) (422.5) (2,018.2) 0.0 4,470.3 22.9% 2019 $92,951.9 8,867.7 (1,074.3) 7,793.3 15.0% 6,624.3 1,074.3 (87.7) (464.8) (2,220.0) 0.0 4,926.1 10.2%
Equivalent Perpetuity Growth Rate 10.0x 4.2% 4.7% 5.2% 5.6% 6.1% 10.5x 4.5% 4.9% 5.4% 5.9% 6.4%
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Valuation Perpetuity growth

Wilmar International Ltd. - DCF Analysis - Perpetuity Growth
(in USD millions, except per share data) Quarter ended Discounted Cash Flow Analysis Sales EBITDA Less: Depreciation & Amortization EBIT Tax Rate Tax-effected EBIT Plus: Depreciation & Amortization Less: Minority Interest Less: Capital Expenditure Less: Changes to Working Capital Less: Changes in Other Items Unlevered Free Cash Flow Unlevered Free Cash Flow Growth Rate Current Share Price DCF Share Price % Premium/(Discount) $4.58 $5.55 21.2% Perpetuity Growth Rate method A Discounted Cash Flows Discount Rate 10.0% 10.5% 11.0% 11.5% 12.0% (2009-2018) $11,060.8 10,723.9 10,400.6 10,090.4 9,792.6 + B PV of Terminal Value as a Perpetual Growth Rate of 4.0% $32,145.06 28,324.6 25,112.0 22,382.7 20,043.1 4.5% $35,235.9 30,832.5 27,173.8 24,096.7 21,482.1 5.0% $38,945.0 33,796.4 29,579.1 26,074.5 23,126.7 4.0% $43,205.9 39,048.5 35,512.7 32,473.1 29,835.7 = C Enterprise Value 4.5% $46,296.8 41,556.4 37,574.4 34,187.1 31,274.7 5.0% $50,005.8 44,520.3 39,979.7 36,164.9 32,919.3 Equity Value 4.0% $39,626.3 35,468.9 31,933.0 28,893.4 26,256.1 4.5% $42,717.1 37,976.8 33,994.8 30,607.5 27,695.1 5.0% $46,426.2 40,940.7 36,400.1 32,585.2 29,339.6 12/31/09 $5,377.9 617.2 (60.8) 556.5 15.0% 473.0 60.8 (21.9) (242.2) 249.7 0.2 519.5 NA 2010 $25,448.6 2,987.9 (302.3) 2,685.6 15.0% 2,282.7 302.3 (87.7) (1,146.6) (549.0) 0.0 801.7 NA 2011 $30,524.3 3,330.9 (359.3) 2,971.6 15.0% 2,525.9 359.3 (87.7) (1,376.0) (855.7) 0.0 565.7 (29.4%) 2012 $36,622.7 3,829.2 (427.9) 3,401.3 15.0% 2,891.1 427.9 (87.7) (1,652.1) (906.6) (0.0) 672.6 18.9% 2013 $43,952.3 4,394.7 (510.5) 3,884.2 15.0% 3,301.6 510.5 (87.7) (1,984.6) (1,068.4) (0.0) 671.3 (0.2%) Fiscal Year ended December 31, 2014 $52,764.4 5,033.8 (609.8) 4,423.9 15.0% 3,760.3 609.8 (87.7) (2,385.6) (1,260.2) 0.0 636.6 (5.2%) 2015 $60,151.4 5,738.5 (695.2) 5,043.3 15.0% 4,286.8 695.2 (87.7) (1,203.0) (1,436.6) 0.0 2,254.6 254.2% 2016 $67,971.1 6,484.5 (785.6) 5,698.9 15.0% 4,844.0 785.6 (87.7) (1,019.6) (1,623.4) 0.0 2,899.0 28.6% 2017 $76,127.6 7,262.6 (879.9) 6,382.7 15.0% 5,425.3 879.9 (87.7) (761.3) (1,818.2) 0.0 3,638.0 25.5% 2018 $84,501.7 8,061.5 (976.7) 7,084.8 15.0% 6,022.1 976.7 (87.7) (422.5) (2,018.2) 0.0 4,470.3 22.9% 2019 $92,951.9 8,867.7 (1,074.3) 7,793.3 15.0% 6,624.3 1,074.3 (87.7) (464.8) (2,220.0) 0.0 4,926.1 10.2%
Net Debt Discount Rate 10.0% 10.5% 11.0% 11.5% 12.0% as of 09/30/09 $3,579.6 3,579.6 3,579.6 3,579.6 3,579.6
Equivalent Terminal EBITDA Multiple 4.0% 9.6x 8.9x 8.3x 7.7x 7.2x 4.5% 10.6x 9.7x 8.9x 8.3x 7.7x 5.0% 11.7x 10.6x 9.7x 9.0x 8.3x 4.0% $6.05 $5.42 $4.88 $4.41 $4.01
Share Price 4.5% $6.52 $5.80 $5.19 $4.67 $4.23 5.0% $7.09 $6.25 $5.56 $4.98 $4.48
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Key financials and ratios

Fiscal Year ended December 31, (USD in millions, except per share data) Income Statement Revenues Merchandising & Processing Consumer Products Plantation & Palm Oil Mills Others Total Revenues Cost of Sales Gross Profit EBIT EBITDA Profit Before Taxes Net Income Earnings per Share Dividend per Share Balance Sheet Assets Cash & Bank balances Total Current Assets Biological Assets Property, Plant & Equipment Total Assets Liabilities Revolver Total Current Liabilities Loans & Borrowings Total Liabilities Minority Interests Total Shareholder's Equity Total Debt Net Debt Cash Flow Statement Additions to PP&E Free Cash Flow Key Operating and Financial Ratios Growth Rates Sales Growth EBITDA Growth EBIT Growth Net Income Margin Gross Margin EBIT EBITDA Net Income Profitability Return on Assets Return on Capital Employed Return on Equity Leverage Ratios Total debt/ equity Net Debt/ Equity EBITDA/ Interest Expense Valuation Ratios P/E P/B EV/EBITDA 49.2x 3.7x 12.4x 35.8x 2.1x 20.0x 19.1x 1.2x 7.1x 18.7x 2.7x 13.1x 14.7x 2.3x 11.4x 13.0x 2.0x 10.2x 11.1x 1.8x 8.9x 165.5% 135.1% 3.8x 61.5% 49.6% 5.9x 53.0% 24.0% 6.2x 39.3% 30.3% 4.4x 32.3% 24.5% 10.2x 28.4% 21.6% 11.7x 24.7% 18.7% 13.5x 5.6% 10.4% 22.0% 3.7% 6.9% 7.1% 8.6% 12.4% 15.3% 8.9% 14.7% 14.4% 10.5% 15.5% 16.0% 10.7% 15.5% 15.8% 11.2% 15.9% 16.0% 10.0% 4.8% 5.9% 3.1% 10.5% 5.7% 6.5% 3.5% 12.2% 6.6% 7.3% 5.3% 13.2% 10.5% 11.6% 7.2% 14.4% 10.6% 11.7% 8.0% 13.6% 9.7% 10.9% 7.6% 13.3% 9.3% 10.5% 7.3% 50.8% 170.1% 173.4% 170.1% 134.7% 159.1% 175.7% 159.1% 77.0% 100.6% 107.0% 100.6% (23.3%) 21.0% 21.4% 21.0% 13.9% 15.4% 14.5% 15.4% 19.9% 11.5% 10.7% 11.5% 20.0% 15.0% 14.5% 15.0% 356.6 (181.9) 544.5 (1,555.9) 1,012.2 1,934.8 482.5 (815.8) 1,017.9 651.9 1,221.0 436.3 1,464.9 558.6 1,510.5 610.3 114.8 2,871.0 124.7 $982.0 1,625.2 1,326.6 4,209.1 1,959.7 818.8 7,325.6 336.3 $8,181.5 5,027.9 4,060.3 3,677.1 2,245.7 1,606.4 7,893.5 368.9 $9,975.4 5,283.6 2,390.5 3,178.2 1,999.1 1,200.0 6,817.9 479.8 $11,147.8 4,378.3 3,378.3 2,935.4 2,153.2 1,200.0 6,729.1 479.8 $12,784.0 4,135.4 3,135.4 2,960.8 2,378.6 1,200.0 6,979.9 479.8 $14,631.0 4,160.8 3,160.8 2,940.1 2,645.1 1,200.0 7,225.7 479.8 $16,782.5 4,140.1 3,140.1 $298.6 2,156.1 223.5 1,154.2 $3,853.0 $967.6 7,084.5 940.0 2,556.8 $15,507.1 $2,893.1 8,293.3 1,021.1 3,252.2 $17,868.9 $1,000.0 7,455.1 1,125.0 3,860.0 $17,965.7 $1,000.0 8,158.1 1,252.3 4,575.7 $19,513.1 $1,000.0 9,239.2 1,404.9 5,437.5 $21,610.9 $1,000.0 10,412.3 1,588.0 6,474.7 $24,008.1 $6,601.1 221.4 10.7 182.8 7,016.0 6,316.4 699.6 338.5 411.8 288.7 215.9 $0.093 $0.003 $13,858.2 2,171.6 29.6 406.7 16,466.2 14,738.3 1,727.8 933.3 1,067.1 829.8 580.4 $0.128 $0.005 $23,525.6 4,758.5 65.0 796.1 29,145.2 25,585.4 3,559.8 1,932.1 2,140.1 1,789.3 1,531.0 $0.240 $0.038 $17,697.7 3,648.3 14.7 986.6 22,347.3 19,392.5 2,954.8 2,345.8 2,590.1 1,998.6 1,606.2 $0.245 $0.055 $20,016.8 4,213.8 46.5 1,171.5 25,448.6 21,791.2 3,657.4 2,685.6 2,987.9 2,509.4 2,045.2 $0.312 $0.062 $24,220.3 4,867.0 53.2 1,383.8 30,524.3 26,362.3 4,162.0 2,971.6 3,330.9 2,819.3 2,308.7 $0.353 $0.071 $29,306.6 5,621.3 59.6 1,635.1 36,622.7 31,765.4 4,857.3 3,401.3 3,829.2 3,267.2 2,689.4 $0.411 $0.082 2006 2007 2008 2009E 2010E 2011E 2012E
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Public comparable trading analysis

Wilmar International Ltd. - Public Comparables
Company Information (All figures in millions, except per share data) Stock Price 52-Week Company Malaysian Comparables Sime Darby Bhd IOI Corp. Bhd Kuala Lumpur Kepong (KLK) Bhd Kulim (Malaysia) Bhd IJM Plantations Bhd Hap Seng Plantations Holdings Bhd Tradewinds Plantation Bhd Kwantas Corp Bhd Sarawak Oil Palms Bhd Sarawak Plantation Bhd $2.67 1.64 4.75 2.19 0.74 0.68 0.49 0.58 0.59 0.62 $2.74 1.67 5.05 2.34 0.87 0.71 0.64 0.67 0.85 0.69 $1.47 0.83 2.36 1.16 0.49 0.42 0.38 0.48 0.55 0.48 97.4% 98.6% 94.1% 93.5% 85.6% 96.6% 76.4% 86.2% 69.4% 89.7% 1.10 1.41 1.08 1.14 1.20 1.18 1.31 0.99 0.98 0.85 6,009.464 6,273.183 1,067.505 318.670 801.343 800.000 529.153 311.677 428.425 280.000 $16,052.5 10,314.8 5,069.4 699.0 594.6 546.1 259.1 179.5 254.3 173.7 $1.06 0.39 1.48 3.11 0.29 0.61 0.74 0.86 0.53 0.52 $681.7 917.2 147.7 340.0 4.9 10.4 240.0 194.0 (5.5) (10.0) Low Mean Median High Indonesian Comparables Astra Agro Lestari Tbk PT Indofood Agri Resources Ltd PP London Sumatra Indonesia Tbk PT Sampoerna Agro Tbk PT Bakrie Sumatera Plantations Tbk PT $2.41 1.3 0.84 0.26 0.08 $2.56 1.37 0.93 0.27 0.11 $0.63 0.28 0.23 0.10 0.02 93.8% 93.2% 90.3% 95.1% 79.2% 1.51 1.38 1.62 1.23 1.73 1,574.745 1,447.783 1,364.573 1,890.000 3,787.997 $3,787.9 1,854.4 1,144.8 486.7 321.8 $0.38 0.65 0.25 0.09 0.07 ($122.1) 560.3 10.8 (20.5) 167.8 Low Mean Median High Singaporean Comparables Golden Agri-Resources Ltd $0.34 $0.37 $0.10 89.4% 1.28 12,138.680 $4,067.4 $0.39 $530.4 Low Mean Median High Low Mean Median High Wilmar International Ltd. $5.22 $5.06 $1.63 103.1% 1.02 6,547.806 $34,146.8 $1.68 $3,248.9 $37,875.6 $4,690.7 1.95x 1.95x 1.95x 1.95x 1.95x 0.83x 2.64x 2.53x 4.92x 1.56x 2.06x 2.06x 2.06x 2.06x 2.06x 0.91x 2.88x 2.64x 5.16x 1.69x 1.79x 1.79x 1.79x 1.79x 1.79x 0.86x 2.49x 2.30x 4.33x 1.49x N.A. N.A. N.A. N.A. N.A. 5.1x 11.5x 11.1x 17.5x 15.1x 10.7x 10.7x 10.7x 10.7x 10.7x 5.6x 10.2x 10.0x 17.1x 14.6x 7.8x 7.8x 7.8x 7.8x 7.8x 7.0x 9.4x 8.1x 13.8x 12.7x N.A. N.A. N.A. N.A. N.A. 6.6x 14.3x 14.6x 19.9x 16.7x 12.4x 12.4x 12.4x 12.4x 12.4x 7.5x 13.6x 12.4x 25.0x 16.1x 8.9x 8.9x 8.9x 8.9x 8.9x 6.5x 9.7x 8.9x 14.4x 14.1x 11.2x 11.2x 11.2x 11.2x 11.2x 8.7x 19.2x 19.1x 32.6x 18.6x 16.8x 16.8x 16.8x 16.8x 16.8x 10.5x 17.3x 16.6x 24.4x 21.3x 11.2x 11.2x 11.2x 11.2x 11.2x 10.4x 14.0x 12.8x 19.1x 16.7x 0.87x 0.87x 0.87x 0.87x 0.87x 0.66x 2.16x 1.59x 6.28x 3.10x $3,682.8 2,757.5 1,155.7 468.4 489.8 4.92x 2.60x 3.23x 3.27x 1.93x 1.93x 3.19x 3.23x 4.92x 4.71x 2.58x 3.32x 2.70x 1.98x 1.98x 3.06x 2.70x 4.71x 4.33x 2.40x 3.01x 2.21x 1.79x 1.79x 2.75x 2.40x 4.33x 14.2x 10.9x 9.3x 13.7x 6.4x 6.4x 10.9x 10.9x 14.2x 11.3x 8.8x 10.2x 10.0x 8.0x 8.0x 9.7x 10.0x 11.3x 9.9x 8.0x 8.2x 7.9x 7.2x 7.2x 8.2x 8.0x 9.9x 15.9x 12.5x 10.3x 16.0x 7.9x 7.9x 12.5x 12.5x 16.0x 12.8x 10.1x 10.9x 12.4x 10.6x 10.1x 11.3x 10.9x 12.8x 10.7x 8.8x 9.2x 9.3x 8.4x 8.4x 9.3x 9.2x 10.7x 23.3x 16.6x 14.2x 22.7x N.A. 14.2x 19.2x 19.6x 23.3x 18.3x 14.4x 16.4x 18.1x 11.5x 11.5x 15.8x 16.4x 18.3x 15.3x 12.0x 12.7x 12.9x N.A. 12.0x 13.2x 12.8x 15.3x 6.28x 1.97x 3.36x 2.92x 1.19x 1.19x 3.14x 2.92x 6.28x $16,918.5 11,358.5 5,297.7 1,454.3 600.0 556.5 520.2 387.2 273.6 165.0 1.84x 2.62x 2.55x 1.02x 4.73x 4.80x 2.51x 0.83x 1.41x 2.06x 0.83x 2.44x 2.28x 4.80x 1.80x 3.61x 2.84x 0.91x 5.16x 4.72x N.A. N.A. 1.60x 2.35x 0.91x 2.87x 2.60x 5.16x 1.65x 2.51x 2.54x 0.86x 4.12x 4.15x N.A. N.A. 1.33x 2.13x 0.86x 2.41x 2.32x 4.15x 14.8x 17.5x 16.0x 6.8x 14.6x 11.2x 10.4x N.A. 5.1x 9.9x 5.1x 11.8x 11.2x 17.5x 13.5x 15.1x 17.1x 5.6x N.A. 9.1x N.A. N.A. 6.4x 7.4x 5.6x 10.6x 9.1x 17.1x 11.6x 13.8x 12.7x N.A. 10.6x 7.8x N.A. 7.0x N.A. N.A. 7.0x 10.6x 11.1x 13.8x 18.8x 19.4x 19.2x 9.6x 17.3x 12.8x 19.9x N.A. 6.6x 13.3x 6.6x 15.2x 17.3x 19.9x 17.5x 16.1x 18.3x 7.5x 23.4x 9.2x N.A. 25.0x 9.0x 8.2x 7.5x 14.9x 16.1x 25.0x 13.9x 14.4x 13.8x 6.7x 12.1x 8.1x N.A. 8.3x 6.7x 6.5x 6.5x 10.1x 8.3x 14.4x 25.0x 32.6x 27.1x 10.6x 20.8x 15.3x 23.6x N.A. 8.7x 17.4x 8.7x 20.1x 20.8x 32.6x 23.0x 24.2x 24.4x 10.5x N.A. 13.5x N.A. 23.2x 14.3x 14.1x 10.5x 18.4x 18.6x 24.4x 18.9x 18.7x 19.1x N.A. 14.2x 11.3x N.A. N.A. 10.4x 11.4x 10.4x 14.9x 14.2x 19.1x 2.53x 4.16x 3.21x 0.71x 2.52x 1.12x 0.66x 0.67x 1.12x 1.20x 0.66x 1.79x 1.16x 4.16x Nov-19-2009 High Low % of 52 Week High Beta Diluted Market Net Debt Enterprise Value (1) Enterprise Value (1) / Sales LTM CY 2009E CY 2010E Enterprise Value (1) / EBITDA LTM CY 2009E CY 2010E Enterprise Value (1) / EBIT LTM CY 2009E CY 2010E LTM P/E CY 2009E CY 2010E P/B LTM Shares(mn) Capitalization BVPS
(1) Enterprise Value = Market Value of Equity + Short-term Debt + Long-term Debt +Minority Interest + Preferred Equity - Cash and Equivalents.
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Disclosure appendix Stock Rating Key: 5-STARS (Strong Buy): Total shareholder return, is expected to outperform the broad market benchmark by a wide margin and we highly recommend that investors buy the stock. 4-STARS (Buy): Total shareholder return, is expected to outperform the broad market benchmark and we recommend that investors buy the stock. 3-STARS (Hold): Total return is expected to be in line with the overall expected market return in the short and long term and we do not recommend a Buy or Sell. 2-STARS (Sell): Total shareholder return is expected to underperform the broad market benchmark and the stock is not anticipated to show a gain. 1-STAR (Strong Sell): Total shareholder return is expected to underperform the broad market benchmark by a wide margin and the stock is anticipated to falling in price on an absolute basis. Other important disclosures: This material is based upon information that we consider to be reliable, but TresVista does not warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. TresVista is not responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results. With the exception of information regarding TresVista, reports prepared by TresVista personnel are based on public information. TresVista makes every effort to use reliable, comprehensive information, but we make no representation that it is accurate or complete. We have no obligation to tell you when opinions or information in this report change. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, other professionals in TresVista. Prices, values, or income from any securities or investments mentioned in this report may fall against the interests of the investor and the investor may get back less than the amount invested. Where an investment is described as being likely to yield income, please note that the amount of income that the investor will receive from such an investment may fluctuate. Where an investment or security is denominated in a different currency to the investor's currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor. The information contained in this report does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation of particular securities, financial instruments or strategies to you. Before acting on any recommendation in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. About TresVista Financial Services: TresVista Financial Services Pvt. Ltd. is a Mumbai-based firm that provides research, analytics, M&A advisory, and other customized services. TresVista partners with financial institutions globally to enable them to rise above the competition in todays crowded marketplace. Through our team of highly trained associates, our clients are able to increase and manage their operational capacity in a cost-effective manner. TresVistas role is to be decided upon by the clients needs and the tasks at hand, be it exploring an arbitrage opportunity, analyzing prospective investments, or conducting due-diligence on a cross-border acquisition. TresVistas flexibility is instrumental to its goal of helping clients reach higher heights. Our clientele include investment banks, private equity firms, hedge funds, debt lenders, and other financial services institutions.
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Wilmar International Ltd. (WIL) : Executive Summary

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Equity Report | November 19, 2009 | Ticker WIL