Wilmar has denied allegations from media reports that it is in collusion with tax officials to underpay Indonesian value added tax (VAT) through questionable and fictitious restitution claims. VAT is payable for Indonesian domestic purchases of palm oil and restitution of VAT payments arises out of refunds when this palm oil is exported. Wilmar can claim back the 10% VAT paid on these export sales. Wilmar says it is in full compliance with the VAT laws in Indonesia.
In the wake of this news, Wilmar's mkt cap has fallen by some US$1.97bn, or 7% yesterday. While this may be an overreaction, also partly driven by the soft broader market, we think sentiment on this stock may be weak in the short term on lingering concerns of the company's coporate goverance. KIm Eng is reducing our fair value FY10 PER multiple to 18x from 20x, to account for this risk. Our new TP is now S$7.20.
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