Form is temporary, class is permanent. In this regard, will Wilmar share price stage a “return of the King”? The counter has been in mighty form lately due to the resurgent crude palm oil (CPO) prices. The monsoon season has caused floods in many areas of the oil palm plantations and caused tight supply. According to Malaysian Palm Oil Board (MPOB), CPO prices are expected to be trading above RM3,000 per tonne mark until the first quarter of 2021.
As Wilmar is one of the world’s largest oil palm plantation owners, CPO prices have always been proxy for Wilmar share price. In fact, the recent explosive form of Wilmar share price should be attributed to the robust CPO prices. To put things into perspective, the current CPO price of RM3836 was nearly a decade record high.
Based on data extracted from MPOB, the last time that CPO prices were trading at RM3800 to RM3900 levels was in February 2011. Back then, Wilmar share price was trading at around the $5.25 bandwidth. Of course, many investors would argue that over the past decade, Wilmar’s businesses had evolved significantly and that it will not be fair to judge Wilmar share price in 2011 against its current levels. However, a look at the financial result of Wilmar actually showed that the performance of 2QFY2011 was comparable to 2QFY2020.
In 2QFY2011, the revenue was US$20 billion while net profit amounted to US$780 million. Fast forward to 2QFY2020, the revenue was US$22 billion while net profit amounted to US$610 million. The key difference between the two periods is the peaking of the CPO prices. In February 2011, CPO prices had peaked while current prices have not reached the peak. Against this backdrop, there is still room for Wilmar share price to continue its ascend.
Another key driver for Wilmar share price is the successful listing of subsidiary Yihai Kerry Arawana (YKA) in the China stock market. Net proceeds of US$2.05 billion were received from the new YKA shares issued. To commemorate the successful listing of YKA, the management has announced a special dividend, of approximately 15% of the total IPO proceeds. Details of the special dividend will be disclosed in February 2021, together with the release of FY2020 results.
Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. I am vested in 4000 shares of Wilmar. Henceforth, this article may be biased towards Wilmar share price. In view of the volatility of Wilmar share price, investors must exercise caution when trading this counter.
Wilmar share price on blistering form
Indeed, all eyes are now on the upcoming 4th quarter financial results, which could potentially define the form of Wilmar share price in 2021. Given the rebounding of China economy, coupled with the increasing palm oil prices, I forecast that the full-year earnings could be 30% higher than that of FY2019. If so, the EPS should be $0.356. Applying multiple of 15, then my target Wilmar share price is $5.34.
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