February 9, 2009

Wilmar today (Feb 04) announced plans by its controlling (48%) shareholder (Wilmar Holdings Pte Ltd, WHPL) to liquidate and distribute Wilmar shares in-specie to its ultimate shareholders. WHPL is in turn 91% owned by Wilmar International Holdings Ltd (WIHL), and the latter will also distribute any shares received to its ultimate shareholders. The purpose of this exercise is to streamline Wilmar’s current shareholding structure, and increase free float from 13.7% to 24.1%. The entire process may take up to 18 months to complete, but interim distributions in-specie may take place prior to the final liquidation.

We view this announcement as a long term positive for the stock, as the higher free float could dramatically increase Wilmar’s MSCI weighting. Among the MSCI Singapore constituents, it is 3rd largest by market cap, but due to low free float it only ranks 14th by index weighting (2.11%). We estimate that the increased free float could almost double its MSCI weighting to 3.7%, boosting its rank to 8th within MSCI Singapore.

However, in the near term this announcement may be negative for the stock price as it creates a significant stock overhang on Wilmar, given the uncertain timing for the share distributions. Coupled with Wilmar’s significant stock price out-performance (outperformed STI by 33% over last 3 months), we expect short term profit taking on the stock. The Kuok Group also becomes the single largest shareholder in Wilmar, but we do not expect significant changes to Wilmar’s management team.

We expect a negative share price reaction when the stock trades tomorrow. Longer term, we remain positive on the company’s fundamentals and would Buy on weakness. No change to our target price or earnings estimates.

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