One step closer to IPO for Wilmar subsidiary Yihai Kerry

RHB Group Research is reiterating its “buy” call on Wilmar International with a new target price of $4.87 — from $4.83 previously — as it is one step closer to its China listing.

Wilmar’s subsidiary Yihai Kerry was amongst the first batch of 32 companies selected for Shenzhen Stock Exchange’s (SZSE) growth enterprise market (GEM) board pilot registration system for listing.

Wilmar’s management has also previously guided that the IPO process would likely be hastened under this programme. The removal of the IPO valuation cap under the new rule also creates potential upside for its value.

As at June 22, Wilmar has submitted an updated draft prospectus to the SZSE for its review and approval. According to the new GEM stock issuance and listing review rules, the total time SZSE takes to review the new listing and register with the China Securities Regulatory Commission (CSRC) should not exceed three months from the date it accepts the application documents. Issuers and sponsors are also required to respond to SZSE inquiries within three months.

Wilmar maintains its timeline guidance on the

IPO and targets to receive listing approval in 2H2020.

In a June 24 report, analyst Juliana Cai says: “Given that Yihai Kerry has previously undergone one round of review by CSRC, we believe the audit inquiry process with SZSE would be smoother this time and the approval could be hastened.”

Under the new listing rules, Yihai Kerry may have potential for a higher IPO valuation as the IPO price will be decided by the market. It will not be bound by any IPO valuation cap.

“We note that Yihai Kerry has highlighted an indicative use of proceeds amounting to RMB13.87 billion ($2.72 billion) in its prospectus. Since Wilmar plans to float 10% of Yihai Kerry, the indicative proceeds translate to a market capitalisation of RMB138.7 billion and imply 25.6 times FY19 P/E,” says Cai.

The IPO price has not been set yet. Hence, there could be room for higher IPO valuation to be achieved, given that China consumer peers are trading at about 34 times FY2020F P/E.

While management has repeatedly highlighted that it would leave some upside for IPO investors, the new rules allow stocks to trade with no up or down limit on the first five days of listing. Therefore, Yihai Kerry could quickly rerate to a peer average even if the IPO valuation multiple was set conservatively.

“We believe the IPO would draw substantial interests due to its large capitalisation, aside from its strong household name in China’s consumer packed edible products,” adds Cai. —