• Singapore’s largest non-cyclical consumer stocks by market cap focused on food production have averaged 5% defensive total returns since regional market highs on 9 June. This marginally outpaced global peers that generated a median 2% over the same period.  

• The strongest performers of this group of Singapore stocks over the period were Mewah International, Del Monte Pacific, ABR Holdings, QAF and Wilmar, with 27% average gains bringing their average 2020 YTD total return to 9%, compared to an 18% YTD decline for the FTSE ASEAN All-Share Index.

• Wilmar is the largest stock of the Singapore group, and plans to list its YKA China business on ChiNext this month, subject to market conditions. This is intended to unlock value for shareholders with food production stocks in China trading at 42x P/E, compared to global ex-China peers that trade at 16x P/E.  

• Wilmar’s China business accounted for ~60% of its FY19 profit. With an indicative 31x P/E valuation for the YKA business, and overall Group P/E of 15x, current pricing is potentially valuing Wilmar’s Ex-China, but globally integrated business with multiple FY19 expansion highlights at a significant markdown.  

Singapore Food Producers Average 5% Gain Since 9 June 

Like most manufacturers, food processing and production companies seek to maximise profits, while continuing to improve throughput, control costs and maximise cashflow. Food production stocks are generally categorised as more defensive or non-cyclical, consumer goods or staples, due to the necessary demand for food. However, within the sector, businesses can also be subject to a number of cyclical, seasonal and competitive forces. 

Since regional market highs were formed on 9 June, Food Producer stocks listed in Singapore with a market value of more than S$100 million have averaged a 5.1% total return, which compares to the Straits Times Index decline of 9.1% and  FTSE ASEAN All-Share Index decline of 8.3%. As illustrated below, the 5.1% return marginally outpaced global stocks of the same genre, with 7 of the 13 Singapore stocks generating gains over the period.

Wilmar Scheduled Plans to List YKA on the Shenzhen Stock Exchange ChiNext Board in Oct 

Wilmar International (“Wilmar”) is Singapore’s largest stock by market value that represents the non-cyclical consumer stocks. The stock has generated a 10.2% total return in the 2020 year to 2 October, with S$69.4 million of net institutional inflow, and has been Singapore Exchange’s eighth most traded stock for the past 40 weeks. Since the STI formed its June 9 high, Wilmar generated a total return of 13.7%. 

Wilmar’s proposed listing of Yihai Kerry Arawana Holdings Co., Ltd (“YKA”) on the Shenzhen Stock Exchange (“SZSE”) ChiNext Board is planned to take place in October 2020, however there is no certainty that the proposed listing will proceed as it is still subject to prevailing market conditions. YKA will be 90% owned by Wilmar with a 10% Free Float on the SZSE ChiNext board. The most recent update on the scheduled listing can be found here. 

Wilmar has long maintained the YKA listing is intended to unlock value for shareholders as China with food production stocks in China trading near 40x their earnings. As illustrated below, the median P/E ratio of China food production stocks is 42.3x compared to 16.0x for global food production stocks ex-China. The past ten years has seen some gradual convergence of the China to global P/E valuations, however China remains a consumer powerhouse. For instance, in terms of scale, comparative populations indicate China is home to 250 times as many consumers as Singapore.

In the recent AGM, Wilmar’s management noted that Wilmar’s China business: (I) accounted for about 60% of Wilmar’s 2019 profit and (II), that the profit margins from the Food Product business were more stable than margins from the Feed Ingredients business. 

With an indicative 31x P/E valuation for the YKA business, and overall Group P/E of 15x, current pricing is potentially valuing Wilmar’s ex-China, but globally integrated business at a significant markdown. While the population of China is 1.4 billion, Wilmar maintain that its products now reach 5 billion consumers worldwide.

Wilmar is branded as Asia’s leading agribusiness group, with its integrated agribusiness model encompassing the entire value chain of the agricultural commodity business, from cultivation, processing, merchandising to manufacturing of a wide range of branded agricultural products. Aside from its expansion in its China operations, Wilmar’s FY19 Annual Report highlighted the following global business expansions:

• A presence in 16 countries across Africa, and is the largest edible oils refiner and a leading oil palm plantation owner on the continent;
• A 50:50 joint venture with Adani Wilmar Limited (“AWL”)  in India, which is the largest refiner and producer of consumer pack edible oils in the country. AWL has expanded into rice and rice milling, as well as enhanced its consumer product offering;
• In Indonesia, Wilmar is continuing to expand its flour and rice milling, oleochemicals,  biodiesel,  refining and packaging  capacities in existing and new sites.
• In Malaysia, 2019 saw Wilmar complete the purchase of two palm oil refineries in Kuantan and Kuching and start construction of a new refinery and a specialty fats plant in Port Klang.
• In Vietnam, Wilmar maintains its leadership position in its core businesses including edible oils and soybean crushing while its new businesses such as rice, grains value-added processing and sauces are growing in domestic sales volume. Wilmar is also expanding its flour and rice milling capacity in Vietnam.
• In Myanmar, the edible oils packing plant and flour  mill commenced operation in Thilawa  in October 2019. Concurrently Wilmar has also begun the construction of a rice milling complex which, when completed, will be the largest in Myanmar, and are in the  process of acquiring another rice mill.
• Completed the acquisition of the balance 50% interest in Goodman Fielder from First Pacific Company Limited in December 2019, looking to expand operations in Australia, New Zealand, Papua New Guinea and the Pacific Islands.

The 13 Non-Cyclical Consumer Stocks Listed on SGX

Singapore lists 13 non-cyclical consumer stocks focused on food production with a market capitalisation of more than S$100 million. The strongest performers of this group of 13 stocks since 9-Jun were Mewah International, Del Monte Pacific, ABR Holdings, QAF and Wilmar International. The 5 stocks averaged 26.8% total returns from 9-Jun to 2-Oct, bringing their average 2020 year to 2-Oct total return to 9.2%. Other stocks among the group of 13 that report revenue to China include Golden Agri-Resources, Japfa and First Resources.

Source: SGX, Bloomberg, Refinitiv (Data as of 2 October 2020)