Wilmar

Wilmar is acquiring 91.38% of Natural Oleochemicals (Natoleo) from Kulim for RM450m. Based in Johor, Natoleo is one of the world’s largest oleochemical producer with a combined annual capacity of 501k MT. Using crude palm kernel oil & palm stearin feedstock, Natoleo makes products such as glycerine, soap noodles, fatty acids, and esters which are used in detergents, home care, cosmetics & toiletries, plastics, pulp & paper, pharmaceuticals, food additives, paints & coatings, etc

Natoleo is a strategic fit to Wilmar’s existing network of oleochemical prodn bases in China & Indonesia. & entrenches the group as Asia’s dominant oleochemicals company with a market share of 35% of Asian fatty acid production capacity (5% global share). NatOleo incurred a net loss of RM23m in FY09 but has turned around in 1Q10 with a net profit of RM16m. Annualisng the 1Q results will put the acqn cost at a reasonable 8x FY10 P/E and P/B of 1.5x. This is also below replacement cost of ~RM500-600m. Funding for this purchase will be from internal sources & bank borrowings. As at Mar 10, Wilmar’s net gearing stood at 41.9% with US$5.85bn cash.

While the impact on earnings is marginal, Wilmar seems to be in aggressive acquisition mode to leverage on its business model to capitalise on growth in markets such as China & India. This purchase comes hot on the heels of its US$1.5bn acquisition of Sucrogen. We maintain our Buy recommendation on Wilmar with a target price of $7.20.