China to remove edible oil price caps. According to Bloomberg, citing the Quanzhou Evening News, the Chinese government has reportedly removed the price limits on edible oils that had been put in place since Nov last year. However, the newspaper has also cited an unidentified official from the price department of the National Development and Reform Commission as saying the government will seek to re-impose some controls should price swings accelerate. Wilmar International Limited (WIL) has declined to comment on the removal of the price caps, saying it is still monitoring the situation.
No major impact expected. In any case, we note that even with the price caps in place, the Chinese government has been supplying companies such as Wilmar with subsidized soy beans to help defray raw material costs. As such, we do not expect the removal of the price caps to have any big impact on Wilmar's performance; although we do not rule out a positive knee-jerk reaction in the near-term. In any case, we also do not expect major cooking oil companies to immediately raise selling prices as we head into the mid-Autumn festival, given that China's inflation has just risen to a three-year high. On the other hand, with the gargantuan economy slowing as well, as the fiscal and monetary stimulus put in place to counter the global financial crisis are withdrawn, some market watchers are concerned that the economy could also face stagflation - a situation where a severe economic slowdown is accompanied by rising prices.
No updates on its property ventures. Meanwhile, we note that the group has also been quite quiet on its property ventures in China; this as part of a 35% JV with two established HK property firms - Kerry Properties (40%) and Shangri-la Asia (25%), both linked to the Kuok Group. The JV has since won two projects in China and was said to be in talks for more in second and third tier cities there. However, in light of the ongoing effort by the Chinese government to tighten credit and rein in the property market, we do not expect to see much headway being made in the near future.
Maintain HOLD with S$5.68 fair value. Nevertheless, we remain positive on WIL's sugar prospects, especially in 2H11; recall that management expects to incur losses in 1H11 but remains confident that its Australian unit Sucrogen can achieve an EBITDA target of US$100m for this year. As such, we maintain our HOLD rating and S$5.68 fair value for now.
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