Wilmar’s 1Q FY09 results were ahead of market expectations – net profit was 32% of full-year consensus figures.

Despite a 31% YoY drop in Wilmar’s revenue, 1Q FY09 net profit was up by 11%, with EBIT margins improving 3.9 p.p. to 11.3%. The standout performers were the palm oil refining and consumer product divisions.

Wilmar is looking to list 20%-30% of its China operations in Shanghai or Hong Kong. This will clearly create excitement in the market, as its China division has the strongest growth prospects. We estimate that55% of Wilmar’s earnings are from China. Wilmar is the leadingoilseed crusher, edible oils processor, consumer pack oils merchandiser and oleochemicals manufacturer in China. We estimate that the top 20 largest market cap stocks in China will trade at an average P/E of 17x in 2009E and 15x in 2010E. Based on market consensus figures, China Agri is trading at a FY2009E P/E of 8x whileChina Yurun is at a FY09E P/E of 13x. We think Wilmar clearly deserves significant premium for its dominant presence in China and strong management.

We have revised up our FY09E and FY10E earnings forecasts by 18%, and have therefore, upgraded our target price to S$4.54 (from S$3.84), assuming that the China profits trade at a P/E multiple of 16x, while the non-China profits trades at a P/E of 14x. We maintain a NEUTRAL rating, as earnings visibility is difficult.

In view of volatile markets, our ‘blue sky’ target price would be S$5.30, assuming that Wilmar FY09 results match its record FY08 profits of US$1.5bn, and the China profits are given a P/E multiple of 17x while the non-China profits trades at a P/E of 15x. The trough target price would be S$3.10, assuming that Wilmar trades at its historical P/B average of 1.8x.