Equity Report | November 19, 2009 | Ticker – WILWilmar International Ltd. (WIL) The Company is involved in the integrated value chain of oil palm cultivation, edible oil refining and packaging, oilseeds crushing, and associated activities TresVista Recommendation – BUY CURRENT TARGET – – SGD 6.32 SGD 7.22 Executive summary Investment thesis: We initiate coverage on Wilmar International with a “BUY” rating. We have arrived at our valuation based on a DCF analysis, public comparable analysis, the current and future outlook for the Group, and the outlook for the edible oil sector, with emphasis on the oil palm and soya bean sectors. Wilmar is an integrated agribusiness player involved in the processing of oil palm and soya bean. The Group’s activities comprise mainly of the cultivation, milling, refining of oil palm produce; crushing and refining of soya bean and other oilseeds; and the merchandising and packaging of the refined products that include edible oils, oilseed meal, Specialty fats and Oleochemicals. Wilmar is also involved in associated activities such as fertilizer and biofuel manufacturing, and the milling of rice and flour. It also maintains and operates a fleet of liquid bulk vessels to meet its transportation needs. Wilmar is headquartered in Singapore, and its core business operations are located in Indonesia, Malaysia, and China. Possible triggers for stock price movement: • IPO listing of China operations: Sector –Edible Fat/Oil Ticker Market Cap. Enterprise Value Per Share Data Current Price 52 Week High 52 Week Low % of 52 Wk. High Number of Shares Multiples PE LTM 2009E 2010E EV/EBITDA LTM 2009E 2010E WIL SGD 40,357.5 mn SGD 46,528.8 mn SGD 6.32 SGD 7.00 SGD 2.26 90.3% 6,385.681 mn 16.3x 19.7x 15.5x 13.4x 13.5x 11.8x Wilmar had postponed the listing of its China business citing a weak IPO environment in China/Hong Kong. Wilmar has until January 2010 to list its China arm, failing which it would have to re-initiate the listing procedure. The Group has confirmed that the listing process is still in progress, though a definite date has not been provided. Wilmar China was expected to be the largest Hong Kong IPO year-to-date, at around USD 3.0-4.0 billion. Any progress in this regard is expected to have a positive impact on the stock. • Spike in crude oil prices: Wilmar International vs. Straits Times Index 275.0 250.0 225.0 200.0 175.0 150.0 125.0 100.0 75.0 50.0 25.0 - The recent upswing in crude oil prices is significant in the context of the palm oil industry. Crude Palm Oil (CPO) prices have historically moved in tandem with crude oil prices. This relation has become more distinct given that refined vegetable oils are a major source of biofuels. An upward movement of crude oil prices is expected to be followed by a similar trend in the price of CPO, encouraging a more positive outlook on the industry as a whole. • Occurrence of El Niño: Nov-08 Jan-09 WIL SP Mar-09 May-09 Jul-09 Sep-09 Nov-09 Straits Times Index (FSSTI Index) Source: Bloomberg Wilmar International - 12 Month Forward P/E 20.0x 17.5x 15.0x 12.5x 10.0x 7.5x 5.0x 2.5x - Alerts have been issued by meteorological institutes in Malaysia, and Australia highlighting the possible onset of El Niño conditions late in 2009. The phenomenon leads to unusually warm temperatures and exceptionally dry weather in SouthEast Asia and Australia. Such weather conditions are known to have an adverse effect on oil palm plantations in the region, affecting crop yields and productivity. Although there is still uncertainty regarding the occurrence and severity of the phenomenon, negative news regarding El Niño may not bode well for companies in the Plantation sector, and may affect the outlook on the industry at large. Nov-08 Jan-09 Mar-09 May-09 WIL SP Jul-09 Sep-09 Nov-09 Source: Bloomberg TresVista Financial Services: All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local exchanges via Bloomberg and other vendors. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES ARE LOCATED IN DISCLOSURE APPENDIX Confidential 1 of 48 Equity Report | November 19, 2009 | Ticker – WIL Table of contents 1. 2. 3. Investment thesis _________________________________________________________ 3 Price performance and correlation __________________________________________ 5 Company overview _______________________________________________________ 6 • Background _____________________________________________________ 6 • Business operations _____________________________________________ 10 4. 5. 6. Executives & shareholders ________________________________________________ 17 Key developments _______________________________________________________ 20 Sector overview__________________________________________________________ 21 • Oil palm industry _______________________________________________ 22 o Crude palm oil – Current scenario ____________________________ 24 o o o Supply and demand for palm oil _____________________________ 25 The relationship between CPO and crude oil ___________________ 28 El Niño and its impact on CPO production ____________________ 29 • Soya bean industry ______________________________________________ 31 o Soya bean crushing – Current scenario ________________________ 33 o 7. 8. 9. Short term outlook _________________________________________ 35 • Edible oil sector: Long-term outlook_______________________________ 37 Recent financial analysis__________________________________________________ 39 Risk factors _____________________________________________________________ 40 Key investment highlights ________________________________________________ 42 10. Valuation analysis _______________________________________________________ 43 11. Valuation – EBITDA exit _________________________________________________ 44 12. Valuation – Perpetuity growth_____________________________________________ 45 13. Key financials and ratios__________________________________________________ 46 14. Public comparable trading analysis ________________________________________ 47 Confidential 2 of 48 Equity Report | November 19, 2009 | Ticker – WIL Investment thesis Relative weakness post delay in China IPO - a good opportunity to buy The Wilmar China IPO was initially expected in mid-October, but has been delayed. According to the Group, weak capital markets have lead to an unstable IPO market at the Hong Kong stock exchange. The delay in listing seems justified as the recent IPO performance at the Hong Kong stock exchange has not been encouraging, with most recent IPO’s significantly underperforming since listing. The recent relative weakness in Wilmar’s share price is judged to be the result of investor perception that the response to Wilmar China’s listing plans was not encouraging, and caused the IPO to be delayed as a result. Core performance backed by supportive market conditions However this presents a good opportunity to invest in the stock, as the Group’s core performance has been solid over the past few quarters, and is backed by strong fundamentals and favorable industry dynamics, thereby limiting the downside. CPO prices are expected to improve and gain further ground from current levels, owing to a combination of factors including robust demand from India and China, rising prices for crude oil - which shares a close correlation with CPO, falling CPO inventories and stockusage ratios in recent quarters, and the looming possibility of a bout of the El Niño phenomenon, which could affect output and exert further upward pressure on prices. On the other hand, announcements of a bumper soya bean harvest in USA and improving growing conditions in South America have lead to a correction in Soya bean prices. This has lent a helping hand to crushing margins in China, where supply is low due to a current shortage in Soya bean supply, driving up prices for products like Soya meal. Crushers of soya bean and oilseeds like Wilmar are price-makers as they artificially control demand, and hence prices, by controlling the amount crushed by them. Hence the combination of rising demand and falling raw material prices have created a situation that players in oilseeds crushing like Wilmar can capitalize on. China and India are major growth drivers Demand from China and India are integral to Wilmar’s growth. Both countries are major customers, and are among the most populous and fastest growing economies in the world. Demand for refined vegetable oil in China and India has accelerated over the past decade. Major reasons include the rise in per capita income in these nations which have seen people shift from traditional, locally sourced vegetable oils and fats to more refined, branded versions that available in the consumer market. The easing of protectionary tariffs in these nations has lead to a surge in imports of vegetable oils and derivatives. Urbanization has been a major trend in China and India over the past two decades, and has altered the demographic profile of these nations; with more and more people moving from a more traditional, agrarian way of life where food requirements were locally sourced, to an urban culture that is dependent on the large scale production of packaged foods, including edible oils, to meet nutritional needs. The improvement in the quality of life in emerging nations has also lead to a change in dietary habits, where consumers prefer processed foods as well more variety in selection, leading to a rise in the large scale production of processed foods, where vegetable oil and specialty fats find a wide range of applications. Vertically integrated business model gives Wilmar the advantage Wilmar’s vertically integrated business model sets it apart from most of its peers, who are mainly pure-play plantations or midstream comparables. Wilmar benefits from the scale of its business operations, which enables it to gather superior market intelligence from a large network on the ground. This gives the Group the edge in effectively timing its raw material purchases and taking up trading positions to extract maximum gains from prevailing market conditions. Operating its own oil palm plantations allows Wilmar to allocate output efficiently. During times when CPO prices are high the Group has the advantage of selling its mill produce – Crude Palm Oil, in the open market, at the cost of its downstream operations. At the same time, Wilmar is a net buyer of CPO as a result of its vast downstream operations, providing its plantations with an immediate buyer for its goods. The Group also enjoys significant logistical advantages arising from the proximity of its refineries to its plantations and important shipping routes. The cost savings thus derived translates significant margin gains given the scale of its operations. Wilmar also operates and maintains a number of key, small scale operations that adds to the benefits derived from its agricultural operations. One such operation is its fledgling fertilizer business that produces NPK fertilizers mainly for its Fresh Fruit Bunch (FFB), Palm Kernel, and CPO subscribers. Accordingly, Wilmar benefits from having a captive market with a significantly lower credit risk. Wilmar also manufactures biodiesel as part of its palm oil refining operations. In this case, the startup cost for setting up biodiesel operations were partially offset by integrating it with its refinery operations. In addition, the Group also maintains a fleet of liquid bulk vessels to meet part of its transportation requirements. Wilmar also has a dominant presence in the Merchandising and Packaging sector for its refined products, in high-growth markets like India and China, as well as Indonesia and Vietnam, among others, where its brands enjoy a majority share of the market. Rise in per capita incomes and purchasing power, as well as the growing level of urbanization in these regions make it very attractive Confidential 3 of 48 Equity Report | November 19, 2009 | Ticker – WIL as a market for packaged edible oils. Its competitive advantage in these regions is facilitated by joint ventures and tie-ups with local players, enabling it to adjust and modify its product offering to suit local preferences. Ultimately, the scale, volume, and reach of Wilmar’s operations enable it to extract margins from almost every step in the value chain. Superior market intelligence affords timely purchase of raw materials, transport and logistical operations become more streamlined, inventory risk is minimized, products are diversified to suit local tastes, and the Group’s output volumes attract big players like Unilever who require uninterrupted supply for its raw material requirements. SWOT Analysis Strengths Dominant position in palm oil supply-chain market Advantage over other players through economies of scale Relatively insulated from commodity price fluctuations due to volume growth Superior market intelligence Large area of maturing plantations Experienced management with strong track record Dominant market presence for downstream products in China, India, Indonesia, and Vietnam Profitable trading desk and highly effective hedging activities Complementary business activities including shipping and fertilizers Significant cost savings through proximity of plantations to refineries and favorable shipping routes Weaknesses Management may be divided among shareholders Lack of transparency in operational data Partial RSPO certification denies the premium commanded by RSPO certified palm oil Supernormal profits dependent on success of trading desk Opportunities Conversion of large unplanted land bank for productive use Further expansion into India and China Expansion in other regions including Europe and West Africa Capitalize on China IPO Well placed to take advantage of the increased demand for biodiesel Absorption of surplus CPO supply through biodiesel boom Low gearing ratio allows room for M&A expansion Threats Volatility in CPO prices Changes in government regulations and tariff policies Onset of crop disease could that damage plantations Possible cap on consumer pack prices, especially in China Logistical breakdown or civil strife in Indonesia Integration risk of acquired businesses Confidential 4 of 48 The stock has witnessed a period of consistent growth after recovering from the lows brought about by the recession late in 2008.0 50. Wilmar International Average Source: Bloomberg. Announces 6.6% 45.000.0 plans to list in China Crude oil rebounds.000.0 50. Major concerns 20.000.0 10.r Hap Seng Plantations Astra Agro Indofood Agri Resources PP London Sumatra Indonesia Golden Agri-Resources IOI Corporation Kuala Lumpur Kepong (KLK) Crude Oil 0.000.000.000.0 81. Relative share price performance & correlation with crude oil & CPO Public comparables: Share price performance .510 0.753 0.886 0.778 0. 2009 | Ticker – WIL Price performance and correlation Wilmar’s 2 year price performance Wilmar's share price perfomance: November 2007-09 90.0 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Share Price (SGD) Mar-09 May-09 Jul-09 Sep-09 Nov-09 - Volume Traded Source: Bloomberg Wilmar’s stock price performance has been in line with the fortunes of the palm oil industry.0 7.000.Equity Report | November 19.7% 166.8% 170.000.850 300.678 0.0 80.856 0. Owing to its integrated business model and diverse revenue streams.7% 157.000.0 China announces food price cuts 30.000.000.9% 150.745 0.869 0.000.4% 37.5% over the last year.7% 100.688 CPO 0.0 8.660 0. Broker Research Wilmar has consistently been trading in the upper bracket and has returned ~ 133. Record palm oil inventories begin to clear after exports pick up 4.0 Announces delay in IPO of Wilmar China 5.0 Sime Darby Wilmar International Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Nov-08 Hap Seng Plantations PP London Sumatra Indonesia Kuala Lumpur Kepong (KLK) Source: Bloomberg Astra Agro Golden Agri-Resources Sime Darby Indofood Agri Resources IOI Corp.914 0.0 40. Wilmar’s correlation with Crude oil and CPO prices is among the lowest in the industry.0 184.0 71.681 0.5% 200.000.0 regarding credit crisis. Positive news regarding the proposed listing of its China business will be a price trigger in the near to short term.0 3.910 0.000.000.0 250.872 0.0 Crude oil slumps. Confidential 5 of 48 .0 70.000.000.692 0.0 Record Q1-08 results following purchase of Kuok Group Strong Q1-09 results. the business is partially insulated from external price fluctuations. 2.November 2008-09 Share price correlation with crude oil & CPO prices 350.938 0.0 60.6% 133.000.571 0.0 Correlation .743 0.0 1.786 0. 000 people. The Group’s superior market intelligence has helped shield its operations from market volatility in the past . Europe and Africa. with products delivered to more than 50 countries globally.Singapore Integrated agribusiness model: Wilmar employs an integrated agribusiness model that captures the entire value chain of the agricultural commodity processing business. while its oilseed crushing and consumer packaging activities are located mainly in China. Malaysia. as well as the scale of its operations enables it to profit from lower costs brought about by economies of scale. Its business activities include – 1. 2009 | Ticker – WIL Company overview Background Wilmar International Ltd. China. oleochemicals and biodiesel manufacturing Grains processing and merchandising Wilmar is one of the largest global processors and merchandisers of palm and lauric oils. The Group has operations in more than 20 countries across four continents. 6. Wilmar’s integrated business model. transportation of the finished product. In addition to this. The Group also has business operations in other parts of Asia. The business is thus able to extract margins from every step of the value chain. and has over 250 processing plants and an extensive distribution network. and ultimately the branding.Headquarters . 3. the Group’s Fertilizer and Shipping businesses complement its core operations. merchandising. Wilmar’s oil palm cultivation and processing activities are centered in Indonesia and Malaysia. where it has formed a number of joint ventures with local players. 5.Equity Report | November 19. was founded in 1991 as a palm oil trading company. and the among the largest palm biodiesel manufacturers in the world. It employs around 70. This includes the origination and processing of raw materials at each step of the value chain.through timely raw material purchases and advantageous trading positions. Global operations .Areas of operation . Oil palm cultivation Edible oils refining Oilseeds crushing Consumer pack edible oils processing and merchandising Specialty fats. logistical and distribution advantages. Headquartered in Singapore. 4. with the primary focus on Indonesia. and distribution of a wide range of agricultural products. and superior market intelligence. it is one of Asia’s leading agribusiness groups and the 2nd largest listed company by market capitalization on the Singapore Exchange (as on November 19. integration. India and Europe. resulting in value addition and an increase in overall efficiency. Confidential 6 of 48 . 2009). 2. The Group’s vertically integrated structure drives its market share gains at every part of the value chain. Shipping. where uninterrupted supplies are essential. as it can process CPO and store it in the refined form with a longer shelf life. Flour. Size also makes it a preferred supplier for large buyers like Unilever. Large refining capacity provides economies of scale. Integration of biodiesel with refinery lowers initial investment costs significantly and operating costs marginally. Confidential 7 of 48 . Biodiesel Bulk Edible Oils Consumer Pack Edible Oils Oleochemicals Oilseeds Meal Merchandizing. Wilmar also procures FFB from plantations without mills. 3.2 million. glucose and maltose powder. 2009. 2. Presence in different geographies allows for producing vegetable oil to meet local specifications and tastes. supply and preferences. soya protein sauce. Sourcing CPO and refined oils from competitors also lowers shipping costs.67% stake in Three-A Resources Bhd. Recent acquisitions • Three-A Resources Bhd . This is especially true when CPO is in a state of over supply. 4. minimizing inventory loss through storage and degradation. 5. Three-A’s main products include caramel colour and powder.7% stake Wilmar acquired a 16. Scale of output allows lower shipping costs of CPO. a Malaysian company manufacturer of F&B ingredients.16. The transaction was completed on November 13. Refining capacity allows Wilmar to weather downturns in the demand and prices of Crude Palm Oil (CPO). vinegar and Maltodextrin.Equity Report | November 19. Distribution networks in China and JVs in India and Africa with strong domestic players allows the company access to the best local intelligence on demand. 6. and Distribution Customers Benefits of Wilmar’s vertically integrated structure The processing capacities of Wilmar’s palm oil mills and refineries enable it to process feedstock in excess of what it sources internally from its plantations. Captive milling capacity ensures Fresh Fruit Bunches from palm trees (FFBs) gets processed in-house and in a timely manner. through a private placement of shares for a total consideration of RMB 46. enabling better utilization of its own mills. 2009 | Ticker – WIL Vertically integrated business model Origination Processing Specialty Fats Other Products: Rice. 1. 7. 25. Ltd. Wilmar China New Investments Pte. Wilmar stated that the facility will be expanded and upgraded to handle grain and other bulk and liquid commodities. with an emphasis on growth in India.0% in the entity. Wilmar also stated that it may sell additional shares of Wilmar China.4%. and continue to look out for attractive investment opportunities. and Indonesia. covered truck receiving station and ship loader. Wilmar intends to increase its investment in core businesses. which stood at 98. which it feels are driven by the growing demand for high quality processed agricultural and consumer products due to rising affluence and increasing urbanization in countries like China. for an undisclosed amount. The Group has stated that it intends to further grow the business as part of a broader business strategy for China. through its wholly owned subsidiary in China. Wilmar’s Chairman.77%. Kuok Khoon Hong said that the Group is looking to invest at least USD 1. Wilmar announced that it would delay the IPO process and continue to monitor market conditions in order to determine an appropriate time for listing. and Africa. and also diversify into new markets. Confidential 8 of 48 . rice. is an important part of the Group’s growth strategy. Indonesia. and meet working capital requirements. • Taizhou Yongan Port Co. palm and laurics into food products.8% stake Wilmar acquired a 35.0-4. The Group aims to pursue positive growth prospects in emerging markets. food ingredients and oleochemicals.0 million. specialty fats. The Group stated that it would use the proceeds to fund expansion.0 billion in China. Wilmar China has 130 manufacturing plants across 35 locations with a sales and distribution network of around 200 sales offices. Mr. it has until January 2010 to list the China business.0% stake in Taizhou Yongan Port Co. which accounted for ~ 49. Wilmar applied for listing in July. Taizhou Yongan’s principal activities are port cargo loading and unloading. Wilmar stated that it will undertake to utilize its sales.0% of Wilmar’s sales in 2008. The acquisition was done through Wilmar Gavilon Pty Ltd.Equity Report | November 19. Ltd. bottles and distributes mineral water sourced from Tibet under the “5100” brand name. In addition to expanding its shareholder base in China. edible oils.0% and 70.. the listing would help Wilmar China in being viewed as a more of a domestic player rather than an international one.. of the rising dominance international players in China’s soya bean crushing industry. after which it will have to re-initiate the procedure. China. 2009. On September 30. and logistics network to further grow the business. 2009. • Water Enterprises Ltd. Future strategy Wilmar is optimistic about the improving global economic environment. for a total consideration of RMB 175. Wilmar’s recent acquisition of a minority stake Three-A resources is indicative of expansion in the Group’s downstream business. a bottler and distributor of mineral water. and according to the regulations. for an undisclosed amount. in connection with the IPO. Wilmar China Group processes oilseeds.0% stake in Water Enterprises Ltd. marketing.. The Group stated that this would lead to a material dilution of around 20. The transaction was completed on May 1. feed meals.. and the resilient demand for food and agricultural commodities. 2009. Wilmar later increased this stake to 39. 2009. grain. to expand plantations and plants. Wilmar stated that it will also pursue inorganic expansion. 2009. in line with its intention of retaining a stake of between 51. . The transaction was completed on March 26.000. China. Wilmar’s diversification in new businesses is highlighted by its minority stake in Water Enterprises. 2009 | Ticker – WIL • Brisbane sugar terminal Wilmar acquired a port facility for a sugar terminal in Brisbane. The Company. bran and oleochemicals. through its wholly owned subsidiary.0 MT dry storage shed. Initial Public Offering of China business Wilmar International announced its intention to list its China assets and businesses on the Shanghai stock exchange on September 17. which it acquired in May 2009. a 50:50 joint venture between Wilmar International and The Gavilon Group. Its products include edible oils. as part of a broader consumer strategy in China. 100.0% of its interest in Wilmar China. Ltd. – 39. and is expected to handle grain exports early 2010. Australia.0% stake Wilmar acquired a 25. The terminal features a private berth.0 billion. soy protein concentrate. The listing is expected to raise around USD 3. Wilmar’s intention to list its business in China may be seen as a response to growing concerns in China. through a transfer of shares from Tibet Water Resources Ltd. flour. on September 21. Furthermore. 2% Others: Fertilizers & Shipping 2.000.Equity Report | November 19.4% 32.000.6 2005 M&P .2008 ( % of total) Others 12.0 4.Palm & Laurics Plantation & Palm Oil Mills Source: Company filings Note: M&P .9 6.2% Confidential 9 of 48 .0 24. 2009 | Ticker – WIL Revenue growth Wilmar International: Revenues .0% Europe 8.7% China 49.3% Source: Company filings Note: M&P .000.5% South East Asia 24.Oilseeds and Grains 25.504.000.Merchandising & Processing Source: Company filings M&P .7% India 5.Palm & Laurics 55.301.000.651.2 30.2 12.4% Consumer Products 16.Merchandising & Processing 2006 2007 2008 Consumer Products M&P .813.000.0 18.3% Plantation & Palm Oil Mills 0.7% M&P .0 19.0 Revenue CAGR 84.2008 ( % of total) Revenue breakdown by geography .Oilseeds and Grains Others: Fertilizers & Shipping Business segments Revenue breakdown by product .2005-2009 (USD millions) 36.0 7. approximately 36. seed quality. and 62. Wilmar also sources FFB from third-party suppliers.000.000. the Group processed 7. Oil palms – Productivity and maturity The main factor that contributes to the productivity of a plantation is its maturity. including small landholders under the Plasma Programme developed by the Group. the Group’s total planted area amounted to 223. The Plasma Programme is a government initiative in Indonesia whereby plantation companies help develop plantation plots held by small landowners.000.0 180.000.000 hectares of oil palm plantations in Malaysia and Indonesia.0 90. 2008. The FFB yield of a typical oil palm is relatively low during the first three years after plantation. the Group managed a planted area of more than 4. CPO and PK are the main raw materials used in the refining process of palm oil. The commercial lifespan of an oil palm is around 25 years. until the oil palm reaches peak production.000 hectares in Uganda. after which it is no longer deemed to be commercially viable for production. Projected maturity profile (hectares) Maturity CAGR 8. West and Central Kalimantan in Indonesia.358. Additionally.2 271. yield gradually increases every year. 2008.453 hectares in Malaysia. The Company managed 33.8 248.0 120. In addition to processing locally harvested Fresh Fruit Bunches (FFBs). including age.528 hectares. 2008. The harvested FFB is then processed at oil mills to produce Crude Palm Oil (CPO) and Palm Kernel (PK).258.805 hectares in Indonesia.8 2008 2009 < 3 years 2010 4-6 years 2011 7-14 years 2012 15-18 years 2013 > 18 years 2014 Source: Independent Research Confidential 10 of 48 .5 241. 2009 | Ticker – WIL Business operations a) Plantations and palm oil mills Wilmar owns and operates more than 500.2% was sourced internally. and about 120.0 240.000.000. comprised of 160. the yield of the oil palm wanes.000.076. quality of plantation management and the timely harvesting and processing of FFBs. Fully mature oil palms produce 18 to 30 metric tonnes (MT) of FFB per hectare.Equity Report | November 19. Beyond that.331.000 hectares under a small shareholder’s scheme in West Africa during the year.781.8 255.0 210.0 60. During the year ended.0% 300. which determines the yield.000. As of December 31.0 234. Yield depends on a variety of factors.0 223.867 hectares under the Plasma Programme during the year ended December 31. December 31.098.0 150.000.000 hectares in West Africa.0 30.7 263.000. soil and climatic conditions. During the years 7-18. and Sabah and Sarawak in Malaysia. Wilmar’s plantations are located in Sumatra.455.2million MT of FFB of which 41.0 270. These products find applications in many industries. Ukraine. Wilmar also owns processing plants in other consuming countries like India. 2009 | Ticker – WIL b) Merchandising and processing – Palm and laurics Wilmar is one of the largest global processors and merchandiser of palm and lauric oils.Equity Report | November 19. RBD palm stearin. and biodiesel. and deodorized) palm oil. Their products include RBD (refined. RBD palm olein. specialty fats. cosmetics and pharmaceuticals. The refining process: Fresh Fruit Bunches (FFB) Milling Palm Kernel Palm Kernel Meal Crushing Crude Palm Oil Crude Palm Kernel Oil Refining Fractionating RBD Palm Oil Refining Fractionating Refining RBD Palm Olein RBD Palm Stearin RBD Palm Kernel Olein RBD Palm Kernel Stearin RBD Palm Kernel Oil Further processing into Specialty Fats. RBD palm kernel stearin. and Biodiesel Confidential 11 of 48 . as well as in consuming countries such as China. oleochemicals. bleached. The Group owns processing plants in major palm producing countries like Indonesia and Malaysia. Ivory Coast through joint ventures. Germany and Vietnam. Oleochemicals. RBD palm kernel oil. with a distribution network spanning more than 50 countries. including food manufacturing. the Netherlands. Russia. crude palm oil (CPO). Uganda and. Equity Report | November 19. milk fat replacers. cosmetics. specially formulated filling fats. 2009 | Ticker – WIL Products and applications: • Bulk edible oils Wilmar’s Bulk Edible Oil products include – − − − − − RBD palm oil RBD palm olein RBD palm stearin RBD palm kernel oil RBD coconut oil RBD palm oil can be further processed into RBD palm olein and RBD palm stearin. soaps. cream filling (for candy. and biscuits) and in coffee whiteners. margarines. creaming fats. soap noodles. which has a lower proportion of saturated oil than RBD palm stearin. • Consumer pack edible oils The Group produces a range of consumer pack edible oils. wafers. plastics. RBD palm olein. The oils used are either pure vegetable oils or a blend of various oils including groundnut oil and soya bean oil. and burns cleaner than traditional petroleum-based fuel. These products are widely used in chocolate coating fats. ice-cream fats. food additives. Confidential 12 of 48 . It contains virtually no sulphur. and polymers. Palm kernel oil and coconut oil. They are used in a variety of applications including the manufacturing of detergents. shampoos. bread. Its biodiesel meets European (EN14214) and US (ASTM D6751) standards. cakes. chocolates. frying fats and many tailor-made fats to suit customer requirements. pastry. cocoa butter replacers (CBR). also known as lauric oils. • Specialty fats Wilmar’s specialty fats products include cocoa butter equivalents (CBE). is mainly used as cooking oil and in industrial frying of processed foods. have a high proportion of lauric acid and are primarily used for the production of specialty fats and oleochemicals. sugar confectionery. RBD palm stearin is mainly used in the manufacturing of specialty fats and oleochemicals. lubricants. • Oleochemicals The Group’s oleochemical products include fatty acids. surface coatings. pharmaceutical products. shortenings. glycerine and other derivatives. fatty alcohols. cocoa butter substitutes (CBS). These edible oils are merchandized and packaged as a wide variety of cooking oils that are sold through the Group’s own brands. • Biodiesel Wilmar produces palm oil methyl ester and palm olein methyl ester. 2009 | Ticker – WIL c) Merchandising and processing – Oilseeds and grains Wilmar is a leading oilseed crusher in China. sunflower seed and sesame seed into protein meal and edible oils. cracking. cottonseed. poultry. and retailers in China. industrial users. toasting. rice bran and rice bran oil. The Group also exports meal to Japan. and Vietnam. Conditioning and Flaking Low-protein soya bean hulls (meal) Full-fat soya flakes + Hexane Extraction Wet Meal Desolventizing. cooling Defatted flakes Grinding High protein soya bean meal Miscella Carbohydrate removal Soy protein concentrate Recovered Hexane Distillation and Filtration Crude soya bean oil Degumming Chemical and Physical refining Refined soya bean oil Soy Lecithin Confidential 13 of 48 . The edible oils produced are sold to the Group’s consumer products division. and aquaculture industries. including distributors. groundnut. Wilmar also engages in the milling of wheat into wheat flour and wheat bran. as well as to third parties. as well as the milling of paddy into rice. where it processes oilseeds like soybean. rapeseed. Protein meal is used primarily by feed millers to produce animal feed for hog. drying. Korea. feed millers. and dehulling Soya bean hulls Dehulled/ Cracked beans Heating and Grinding Heating. wholesalers. Oilseeds/soya bean processing: Soya Beans Cleaning.Equity Report | November 19. No. baking products. In addition to edible oils. including Double Ring. sunflowerseed. The Group markets soybased consumer pack edible oils under its own brands. ice-cream and whipped toppings. Its non-food applications include cosmetics. supermarkets and convenience stores nationwide. pesticides and textiles. Soya bean meal is a concentrated source of protein and energy. groundnut and camellia Range of edible oils including blended oils. Twin Crane. Brand Arawana Koufu Orchid Gold Ingots Golden Carp Huaqi Baihehua Xiangmanyuan Products Range of edible oils including blended oils. shortenings and margarines. Neptune. confectionery. 4. S. 2009 | Ticker – WIL Products and applications: • Soya bean meal Soya bean meal is one of the most widely used protein ingredients in animal feed. China: Wilmar produces and markets different types of edible oils under various brands in China. sesame. 8. along with its joint ventures. Indonesia. hypermarkets.Equity Report | November 19. • Soy Lecithin Soy lecithin is a by-product of crude soya bean oil refining. d) Consumer products Wilmar. pharmaceuticals. and Bangladesh. powdered soups and milk replacers. the Group’s markets many flour brands. 7. coffee whitener. Vietnam. corn. 1. 1. India. paints and coatings. The Group has an established sales and distribution network spanning traditional retail outlets. paints. groundnut and camellia Groundnut oil Soya bean oil Rapeseed oil Assortment of edible oils Assortment of edible oils Assortment of edible oils Confidential 14 of 48 . rapeseed. adhesives. The combined operations in these countries makes Wilmar the world’s largest producer of consumer pack edible oils. produces consumer pack edible oils and markets them under its own brands in China. • Soya bean oil Soya bean oil is used in many edible products such as salad and cooking oils. 6. soaps. as well as in food and non-food applications. inks. soya bean. rapeseed. Purple Orchid. Twin Spoon and Blue Key. Yellow Dynasty. sunflowerseed. plastics. Lecithin’s food related applications include margarine. cocoa powder. soya bean. corn. instant food. and for industrial uses such as pesticides carriers. 2. biofuel and lubricants. 5. waterproof cement. • Soy proteins Wilmar also produces soy proteins such as Arcon SJ and SPC. polymers. soaps. sesame. 3. targeted at different market segments. Arcon SJ is used in meat processing while SPC is used as a high source of protein in the feed industry. Lecithin is widely used in animal and fish feeds. and is lower in fiber than most other oilseed meals available to feed manufacturers. These segments are drawn by geographical regions and consumer preferences. rock phosphate. The fleet meets around 30. cottonseed.No. 4. S.No. designed to target different market segments. sunflower seed.0% stake in the Raffles Shipping Corporation. 2. The fertilizer manufacturing and distribution business is expected to grow with the expansion of oil palm acreage in Indonesia. Vietnam: Wilmar offers a range of edible oil and related products.“Aadhar” and “Alpha” which are distributed by Acalmar. Both brands are distributed mainly in the eastern. Its primary customers are the FFB. 2008. 1. and kieserite. This enables Wilmar to benefit from the captive market with lower credit risk. a joint venture company with the Acalpo Group. Wilmar produces NPK compound fertilizers. Brand Fortune Jubilee Raag Alpha Aadhar Products Assortment of edible oils (including soya. Phosphorous (P). and Potassium (K). and rice bran oil Palm olein blended with soya bean oil. S. f) Shipping Wilmar owns and operates a fleet of liquid bulk vessels that caters primarily to in-house needs. Brand Neptune Simply Meizan Cai Lan Products Palm olein blended with soya bean oil Soya bean oil. urea. Other brands distributed by AWL are “Jubilee” and “Raag”. groundnut. Confidential 15 of 48 . Brand Sania Fortune Palm Oil Palm Oil Products 3. in states like Andhra Pradesh. which consists of three primary nutrients – Nitrogen (N). India: Wilmar’s products under the “Fortune” brand of cooking oil are distributed by Adani Wilmar Limited (AWL) – a joint venture company between the Adani Exports Group of India and Wilmar. 5. a Singapore based ship chartering agent that managed Wilmar’s vessels prior to the acquisition. 2. CPO and palm kernel suppliers to the Group. 1. 3. The Group is also engaged in the trading of straight fertilizers such as potash. 2. 1. ammonium sulphate. palm. and coconut oil) Shortening Soya bean oil and vanaspati Palm oil and vanaspati Soya bean and sunflower oil 4. Tamil Nadu and Orissa.No. rapeseed oil. coastal region of India. Wilmar acquired a 60. Indonesia: Wilmar markets its products in Indonesia under the “Sania” and “Fortune” brand names S. The acquisition is expected to enable Wilmar manage its shipping operations more efficiently. 2009 | Ticker – WIL 2. mustard seed. sunflower oil. in Vietnam. In October.0% of the Group’s liquid bulk shipping needs. and soya bean oil Palm olein blended with soya bean oil e) Fertilizers Wilmar’s fertilizer business is designed to leverage the Group’s network of raw material suppliers. 4. 3.Equity Report | November 19. Wilmar also has two other brands in India . while the oilseeds crushing and refining.000.0 1. of Plants Capacity (MT/annum) 33 38 23 12 32 5 2 4 9.0 2.180. 2009 | Ticker – WIL Wilmar’s overall production capacities Wilmar’s overall production capacities are distributed between Indonesia.0 1.Major Customers Customer Alfred C. Includes plants & facilities that were planned/under construction Customer profile Wilmar International .000.000.000. flour and rice milling.000.000.0 Note: as of June 30.0 NA NA NA NA NA NA NA 12.000.240.000. Cognis Deutschland Hindustan Lever Nestle Nirma Procter & Gamble Savola Unilever VVF Source: Broker Research Note: As of September 2008 Country Germany Indonesia China China USA USA China China Germany India Switzerland India USA Saudi Arabia Netherlands/UK India Confidential 16 of 48 .550.000.530. and biodiesel plants are situated in Indonesia. No.0 9.0 6.0 450.360. Manufacturing Facilities by Process Process Malaysia & Indonesia Refining Fractionation Palm Kernel & Copra Crushing Packing Plant Palm Oil Milling Specialty Fats Fertilizer Biodiesel China Oilseeds crushing Refining Consumer oils packing Oleochemicals Specialty fats Flour milling Rice milling during the period.000.Equity Report | November 19. and Malaysia.510.540. Its palm oil refineries.0 490.000.000. fertilizers.0 560. and China.0 620. Toepfer International Arnott Indonesia Beijing Heyirong Cereals & Oils Beijing Orient-Huaken Cereal & Oil Bunge Cargill China Grains & Oils Group China National Vegetable Oil Corp.000. and consumer packaging plants are located in China. Malaysia.150.000.0 320.0 9.0 5.000.0 300. 2007.430. human resource management and securities industry regulation. He is also in charge of technical operations and Group operations in Malaysia and Europe. is Vice Chairman of China Division and Group Head of Consumer Pack & Specialty Fats. Chairman and Chief Executive Officer of the Group. Key management a) b) c) d) e) Mr. He holds a degree in economics from HKBP Nomensen University in Medan. Chua Phuay Hee – Executive Director – Finance and Corporate Services Mr. Mr Lee was responsible for starting the Kuok Group’s first vegetable oil refinery in China in 1988. He has held several key executive positions in various companies. Teo Kim Yong – Executive Director (Commercial) Mr. Teo. infrastructure. Martua Sitorus – Executive Director and Chief Operating Officer Mr. Lee Hock Kuan – Executive Director (Head of Southern Region. Singapore. Teo joined the Group in 1992 and has extensive experience in the merchandising of edible products. 55. USA and a Bachelor of Science (Honours) degree from the University of New South Wales. Specialty Fats & Oleochemicals for the China division) Mr. Goh Ing Sing – Head of Plantations Division Mr. Lee. Mr. Kuok Khoon Hong – Chairman and Chief Executive Officer Mr. 59. He has been a Director of Kuok Oils & Grains Pte Ltd since 1997. He has held various managerial positions with plantation companies from 1976 to 1992. He joined the Group in 2002. is in charge of Finance and Corporate Services. He received his Executive Masters of Business Administration and Bachelor of Business Administration degrees from Preston University. Teo graduated from the then University of Singapore with a Bachelor of Business Administration degree. Marketing Director of Keck Seng Pte Ltd and Managing Director of Kimlimco Pte Ltd. Sitorus. and a Bachelor of Science (First Class Honours) degree in Mathematics from the then Nanyang University. Kuok. and Managing Director of Kuok Oils & Grains Pte Ltd from 1989 to 1991. He is a Director at Industrial Bank Co. oilseeds and grains businesses. Mr Lee holds a Masters Degree in International Business Management. He has extensive experience in the overall management and strategic operations in the edible oils. 2009 | Ticker – WIL Executives & shareholders Board of Directors a) Mr. Goh was appointed as the Deputy Head of Plantations Division in July 2007 and has served as the Head of Indonesian Plantations since 1992. including General Manager of Federal Flour Mills Bhd from 1986 to 1991. Confidential 17 of 48 . is the Co-founder. Chua received his Masters of Science (Actuarial Science) degree from Northeastern University. 49. Boston. Executive Director and Joint Chief Operating Officer of the Group. USA. Ltd. factories and facilities in Indonesia and India. Chua. he spent 9 years with the Monetary Authority of Singapore in various capacities relating to insurance regulation. Singapore. a company listed on the Shanghai Stock Exchange.Equity Report | November 19. f) Mr. Martua Sitorus – Executive Director and Chief Operating Officer Mr. Teo Kim Yong – Executive Director (Commercial) Mr. Indonesia. d) Mr. 55. Mr. 55. is the Co-founder. especially in China where he has been posted for almost 20 years. c) Mr.. is in charge of commercial activities and the Group’s merchandising of palm and lauric oils. He also served as a director of Gardner Smith. Kuok Khoon Hong – Chairman and Chief Executive Officer Mr. He is in charge of the management and development of plantations. Kuok graduated from the then University of Singapore with a Bachelor of Business Administration degree. He is in charge of overall management of the Group with a particular focus on new business development. His past positions include Marketing Manager of Sime Darby Edible Products and International Marketing Manager of Hwa Hong Oil Industries. Prior to that. b) Mr.. Singapore. His past positions include Chief Financial Officer and Chief Risk Officer of Keppel TatLee Bank Ltd. Mr. Consumer Pack. Mr. Chua Phuay Hee – Executive Director – Finance and Corporate Services Mr. Confidential 18 of 48 . Indonesia Mr. Saksti joined the Group’s Indonesian operations in 1994 as a Branch Manager. He has lived and worked in New York. Malaysia Mr.Equity Report | November 19. He holds a Bachelor of Science (Honors) degree majoring in Chemistry from the University of Malaya. responsible for the palm oil business. following the completion of the Group’s merger and restructuring exercise. Risk Management and Investor Relations. Heng graduated from the National University of Singapore with a Business Administration degree. and then worked for JP Morgan. Yee was appointed Head of Operations. Mr. Mr. He is in charge of Finance. 2009 | Ticker – WIL g) Mr. Heng started his career with United Overseas Bank and subsequently joined the Monetary Authority of Singapore in foreign reserve management. ST Engineering. In 1996. He has previously worked for SingTel. Yee Chek Toong – Head of Operations. Francis Heng Hang Song – Chief Financial Officer Mr. Francis Heng joined the Group as the Chief Financial Officer in September 2008. Hendri Saksti – Head of Operations. He is currently in charge of the Group’s fertilizer business. Switzerland & Hong Kong. several manufacturing plants and the marketing of Wilmar’s consumer pack cooking oil in Indonesia. Malaysia in July 2007. Legal. London. he was appointed Finance and Accounts Director. Corporate Secretarial. h) Mr. i) Mr. He joined PGEO Edible Oils Sdn Bhd in 1980 and is presently the Chairman and Managing Director of PGEO Group Sdn Bhd. Jardine Matheson & Tetra Pak group. chemicals.362.27% 0. feed milling.38% 4.35% 18.784.115.112.0 35. flour milling.365.0 662. Ltd.700. wheat and cocoa. The Kuok Group has since grown to become one of Asia's most diversified multinational conglomerates.Equity Report | November 19.L. It is a Fortune 100 company and is listed on the NYSE. 2009 | Ticker – WIL Shareholding profile • Top 10 shareholders Shareholder/Institution Wilmar Holdings Pte.00% • 1. Archer Daniels Midland Company (ADM) ADM is one of the world’s largest agricultural processors of soya beans.0 6. ADM is headquartered in Decatur.0 % holding 29. L. N. Key shareholder profile The Kuok Group Kuok Group of companies was started in 1949 in Malaysia as Kuok Brothers Private Limited engaged in the business of trading in rice. Illinois.681.insurance. Others Total Shareholding Source: Reuters Number of Shares 1.56% 0. Kuok Group’s business activities include – − − − − − − − − Trading . steel products and agricultural machinery Shipping and logistics Manufacturing – sugar refining. and operates processing and manufacturing facilities across the United States and worldwide. corn.37% 8. namely ethanol and biodiesel.02% 0.678.138.400.sugar.0 535.874.515.25% 27. fund management Real estate Hotels and hospitality Environmental engineering.012.630.084.0 1. and media 2.289.0 17.164.C. Founded in 1902 and incorporated in 1923. Inc. Kuok Brothers Sdn.326.78% 100.0 18.951. fertilisers.A.601. chemicals Financial services . JF Asset Management (Singapore) Ltd.0 1. Bhd. sugar and wheat flour.0 30.970. Archer-Daniels Midland Co Kerry Group Limited Kuok (Singapore) Limited Van Eck Associates Corporation William Blair & Company.000.29% 0.169. Barclays Global Investors.0 256.24% 10. fertilizers.48% 0.955.0 16.520. It is also a leading manufacturer of bio-energy. waste management and utilities Leisure and recreation.774.000. Confidential 19 of 48 . Capital International.385. for USD 1. edible oils. and one fractionation plant in Butterworth.0 million − Renamed Wilmar International Limited on July 14.0% stake in Malaysia’s Three-A Resources. oilseeds. Completed a refinery and a fractionation plant through a joint venture with TSH Resources in Malaysia − Acquired a controlling stake in PT Cahaya Kalbar Tbk. Upgraded capacity of both plants upon commissioning − Established first palm oil milling plant. one of Africa’s largest agro -industrial groups with significant interests across palm oil. − Formed Joint Venture with Nizhny Novgorod Fats & Oils Group and Delta Exports Pte Ltd to drive expansion into Russia and the CIS countries − Completed the merger with Kuok Group’s palm plantation. after a successful equity placement exercise that raised USD 180. baked confectionery. grains and related businesses in a deal worth USD 2.000 hectares in Indonesia − Concluded a major capacity expansion through completion of 3 refineries. The listing is currently delayed due until further notice. 4 palm oil milling plants and 1 compound fertilizer manufacturing plant. cotton seed oil. and related beverages and food industry − Established first compound fertilizer manufacturing plant − Developed and marketed the ‘Sania’ brand of edible oil in Indonesia − Acquired three copra crushing plants in Indonesia − Expanded into production of higher value-added downstream products including specialty fats − Established refinery operations in Malaysia with the acquisition of one palm oil refinery. 4 palm kernel crushing plants. − Expanded oil palm plantation acreage through the acquisition of a total of 140. including interests held by Archer Daniels Midland Asia Pacific (ADM) and its subsidiaries in these businesses.7 billion − Concluded a restructuring exercise to acquire the edible oils. natural rubber and sugar sectors in Africa − Successfully launched inaugural USD 600. − Acquired two crushing plants and a refinery in Indonesia.6 billion − Formed joint venture with Olam International Ltd and SIFCA Group. 2009 | Ticker – WIL Key developments 2009 − Completed the acquisition of a 17. commenced work on a second refinery − Commenced operations as a palm oil trading company Indonesia Confidential 20 of 48 .0 million convertible bonds issue due 2012 − Re-quoted on the Singapore stock exchange on August 8. 2006. an Indonesian producer of specialty oils and fats for cocoa confectionery. 3 fractionation plants. 2006 upon completion of the reverse takeover of Ezyhealth Asia Pacific Ltd. with the view of forming joint ventures to set up caramel processing facilities in China to serve soya sauce manufacturers.Equity Report | November 19. − Announced the intention of listing its China business.100 hectares and established first oil palm plantation in Sumatra. grains and related businesses of Wilmar Holdings Pte Ltd (WHPL). purchased first liquid bulk transport vessel 2008 2007 2006 2005 2002 2000 1998 1996 1995 1991 − Acquired a land bank of approximately 7. while soya bean oil production grew at a relatively slower pace. Production of palm oil and palm kernel oil witnessed robust growth at 6. The global vegetable oil market has seen significant growth over the past several years.0% of the global production of the major vegetable oils.36 t/ha for soya bean and 0.8% in 2009.6 41. where vegetable oils have found applications as a source of an alternative to fossil fuels. Global production of 8 major vegetable oils (million MT) 50. and due to the demand from the non-food sector. coupled with increasing change in consumer dietary habits. together with the overall growth in the vegetable oils industry. Vegetables oils have replaced animal fats as the major source of cooking oils and fats. palm oil and palm kernel oil. consolidating Asia’s position as the major producer of vegetable oils and fats. As a result. Vegetable oils industry The global vegetable oils industry accounted for ~ 84. There has also been a significant shift in production areas over the last decade. The historical price discount for palm oil in relation to other oils also makes it a more attractive option.0 20. Developed nations.2% per annum during the period 19982008. as compared to 0. at around 3. where rising populations. and Nigeria. Confidential 21 of 48 .0 15.0 10. the share of palm and palm kernel oil in total production has gone up from 33.7 16.8 37.0 16. mainly biofuel producers. with the increase in per-capita consumption of vegetable oils in Latin American and Asian nations.0 40.7 36. have reached saturation point where per capita consumption of vegetable oils are concerned.9% per annum for animal oils and fats. together with soya bean oil. Thailand.6 30.6 47. developing economies and the gradual easing of trade tariffs and restrictions have lead to rising demand and consumption. vis-à-vis 1.3 10. and has enjoyed steady growth over the course of the past decade.9% in 2005 to 36.1%. especially for biofuel production. including Indonesia.3 10.0 15. This growth is lead by China and India in particular. This increase in production has been largely attributed to improving yield performance in all key producing countries.2 34. 2009 | Ticker – WIL Sector overview Introduction – Global oil and fats industry The global oils and fats industry has undergone major changes over the last four decades.0 2005 Palm & Palm Kernel Source: USDA 2006 Soya bean Rapeseed 2007 Sunflowerseed 2008 Cottonseed Peanut 2009 Coconut Olive During the period from 2005-2009. leading to a switch from animal oils and fats to vegetable oils. especially since 2006. Colombia. Another contributor to the growth in the industry. contributed to the growth in the palm oil industry. have typically accounted for around 64.6 16. All of this.0 35. higher per capita income in developing countries.60 t/ha for rapeseed.8 9.2%. Oil palm has the highest oil yield. Part of the growth is also the result of a bias towards oilseeds with higher oil content.43 tonnes/hectare (t/ha). highlighting the increasing usage of vegetable oils.4 45.Equity Report | November 19.7 9.6 32.6 18.4 11. The factors contributing to the increase in demand include rising populations. World vegetable oil production grew by 5.4 0.2 17. At the same time China and Indonesia gained significant market share in the vegetable oils and fats industry. on the other hand. as well as more mature oil palm areas coming into production in Indonesia. The other major Asian producers are Malaysia and India.6 16. at a CAGR of 2. has been the demand from the non-food sector.5 20. except Malaysia. most notable being the fact that the US lost its position as the world’s largest producer of oils and fats.7 40.6 37.0% of total production of oil and fats in 2008.6 17. 0 15.8% Nigeria.0 5.0 1998 1999 2000 2001 2002 2003 2004 Soya bean oil 2005 2006 2007 Sunflower Oil Source: IndustryResearch Rapeseed Oil Crude palm oil 2008 (JanJune) Per capita consumption of vegetable oil (kg) 45.9 17.0 10000. and Nigeria.0 Malaysia.0 4000.0 17.3 31.0 10.2 28. 19.783.0 400. 820.0 2006 2007 Indonesia Malaysia 2008 Others 2009 Source: USDA Confidential 22 of 48 .0 15.0 35.9 17.000.0 5.0 0.500.5% Indonesia. 41.0 15.0 800.343. 6.0 18.1%.2 18.369. Indonesia and Malaysia are by far the leading palm oil manufacturers in the industry.0 4.0 6000. 45.0.9% Other. together accounting for more than 87.560.0 16000.485.0 12000. % of total) 22000.0 600. 1.500.58 million MT.0 14000. 17.0 25.2009 ('000 MT.0 5.0 30.290.0 1600.200.8 on g Source: Industry Research Oil palm industry Palm oil enjoys the largest share of the global vegetable oil market in terms of production and consumption.1% Thailand.4 11. 778.0 0. 2. The total production of palm oil for FY ended September 2009 stood at 42.0 Ko ng SA zi l do ne si a hi n pa n -2 7 an an Pa ki st Br a Ta iw EU In d U ia a 40.0 8000.0 1000. This represents an 18.8% increase from the total global production in 2006.8 million MT.June 2008 (USD/tonne) 2000.0 19.Equity Report | November 19.0 1400.0 1800.0 5.7 25.0 20.7 29. Palm oil: World production . 1. Colombia. 1.0 1200. which stood at 35. at a CAGR of 6.0.0.2009 ('000 MT) Ja 20000.0 18000.0 40.0 0.0.0 2000.5 29. 2009 | Ticker – WIL Average prices of the four vegetable major oils: 1998 .0 16.8% Colombia.600. The other major producers of palm oil are Thailand.0 200.0.567.500. 2.0.783.8% Source: USDA H In C Palm oil production: 2005 .500.0% of global production during 2009.0 17.0 15.581. 4. 4.2% India.0. % of total) China.550. Concerns over the increasing demand for energy. 1. Yields in different plantations may vary.Equity Report | November 19. % of total) China. Typically. 5.2% India. Malaysia.0. 5. the price structures can vary. 4. Global palm oil consumption by region .0% of total production. 8. Other than Indonesia and Malaysia.9% Source: USDA Source: USDA Competitive advantage of palm oil versus other vegetable oils Palm oil has a natural cost advantage versus all other types of vegetable oils. China and the EU-27 are the other main consumers of palm oil. This follows from the 1997 EU resolution to improve the share of renewable energy in total energy consumption. consumption growth has also been assisted by factors including the increasing awareness about palm oil and its applications and benefits. making it the single largest consumer of palm oil globally – accounting for 14.926. Indonesia and the European Union (EU–27) are the major consumers of palm oil. along with favorable demographics and rising per capita income are the major growth drivers behind the increasing consumption of palm oil in China.3% Others.2% of total consumption.255.0% Pakistan.0%). Palm oil plays a key role in China’s oleochemical industry.151. the yields from palm plantations are much higher than other crops. The growth of the oleochemicals industry. who has been the largest consumer of oils and fats since 2003. accounting for an average of 62. However. margarine. This is due to the fact that once the plantations have started bearing fruit. and the threat of global warming have lead the EU to bind its member states to achieving a 10. due to its high concentration of saturated fats (51.0%). from 8.0% minimum target for the use of biofuels in transport.151. as it is produced in large quantities. biodiesel. 13. all estates have good and experienced managers.381.974. and some with integrated plants that extract and refine the FFBs into CPO. and well set procedures which if adopted should provide for a profitable plantation.2% in 2009. 2. and are driven by better saplings.0. 2. where it most widely used vegetable oil.708. 4. 37.0.0. specialty fats and other oleochemicals. The period 2006 to date has seen India’s domestic consumption of palm oil grow at a CAGR of 23. as consumers switch to healthier options.0. and better estate management – all of which can improve profitability. 12. who are also the largest producers. 3. 8. In addition to the fact the nation has traditionally been a major consumer of palm oil.890. it is important to note that the rising affluence of consumers will eventually lead to competition for oil palm as cooking oil. Owing to this. as it is not an annually cultivated crop. with some plantations selling just FFB. 4.3% Indonesia.836.0. early year care. 15. One of the main drivers for palm oil consumption in the EU is the rising demand for the commodity from the biofuel industry. the variable costs versus other crops are much lower.9% in 2006.0.0.200. The profitability of the plantation companies is largely tied to palm oil prices.0.0. Pakistan. are the major oils consumed in China.0.124. 3. India’s share of global palm oil consumption has risen significantly.0. some only processing up to CPO.5%. Also. Total domestic consumption has increased in tandem with production over the last four years. Confidential 23 of 48 .6% Others.6% Malaysia. 11. and the gradual easing of the import regulations and protectionary tariffs imposed on the commodity.2006 ('000 MT. 5.9% Indonesia. Though it is one of the most widely used edible oils in the world. cooking oil.0% of global consumption during the period 2006-2009.2009 ('000 MT. against substitutes like soya bean (15.553. 14. 2009 | Ticker – WIL Domestic consumption India. 10. 13.4% Pakistan.2% EU-27. rising fossil fuel prices. EU-27. with palm-based oleochemicals accounting for around 40. to 14. 14.875. Palm oil. 39. China.9% 11. 4.7% Global palm oil consumption by region . along with soya bean oil.0. However the base-load demand for palm oil in industrial preparation should continue to be sustained as palm oil is the lowest cost option among edible oils. 7.9% Malaysia. fertilizer prices. generally 1Q During winter. Pakistan.0 450. The price of CPO is the main measure by which the current and future prospects of the Palm oil are determined. generally 1Q As imports drop As tax increases USDA report NA NA USDA. 2009 | Ticker – WIL Crude palm oil – Current scenario The whole value chain of palm oil and its derivatives.0 400.0 90/91 91/92 92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 Very high yields due to abnormal rainfall. Malaysian shortage due to cyclical decline in yields Source: Bloomberg. and livestock populations to weather forecasts. Aside from the dynamics of demand and supply. and biofuels are derived from CPO. company reports Government announcements Bullish scenario Bearish scenario Trigger CPO price history (USD/tonne) 700.0 500.0 550. Supply shortage due to Indonesian forest fires and drought. El Nino.0 200. Oil World reports USDA. Broker Research Average CPO Price Confidential 24 of 48 . among others. and China Liberalization of Indian and Pakistani palm oil import market.0 250. Soybean prices collapse due to Brazilian Real devaluation.0 350. Robust demand from India. biofuel prices Edible oil inventory Olein discount to soybean oil USD relative value As price rises As price rises As price rises As stock/usage ratio drops As olein discount widens As USD weakens As price drops As price drops As price drops As stock/usage ratio rises If olein trades at a premium As USD strengthens NA NA Changes in forecast USDA.Equity Report | November 19. generally in 3Q Non winter time As imports jump As tax decreases As livestock population drops Post festivals. Oil World reports NA NA As livestock population rises Seasonal. biological tree stress.0 300.0 650.0 600. Oil World reports MPOB reports NOAA reports EPA annual RFS decision NA MPOB. weak monsoon Biofuels As gasoline demand increases Fertilisers As price increases Low cycle Biological tree stress Export tax As tax increases Demand side Livestock Festivals Winter clouding effect Imports Import tax Price relative Soya bean oil price Rapeseed oil price Crude oil. the price of CPO is determined by a host of other factors ranging from soya bean crushing volumes and prices. palm-based oleochemicals. export taxes and other government controls. Factors affecting CPO price Supply side Soya bean harvest & crushing Below expectations Rapeseed harvest & crushing Below expectations Palm oil production Below expectations Weather La Nina. Oil World reports Government announcements Above expectations Above expectations Above expectations Favourable weather As gasoline demand drops As price drops Peak cycle As tax decreases USDA. 1% during the period January-September 2009.4 158.6 184. which lead to a lower use of fertilizers by the small plantations owners in Indonesia and Malaysia.1 178.941.9 323.1 188.2 1.0 1.2 189.9 172.4%) 6.0 1. A monthly comparison of oil palm produce is indicative of the drop in yield and lower production numbers.8 164.2 1. The milling capacity utilization rate in Malaysia has dropped to 86. the crisis caused a general shortage of working capital.7 % change (10.0% 0.1% (7.187.0%) (16.5%) (2. Lower fertilizer use results in poor FFB yields.5%) (3.0% 15.7 178.2 147.6 345.468.1 189.462.718.327.4%) (4.424.2%) (4.2 1.8 207.579.0%) (5.4%) (4.275.Equity Report | November 19.0% 6. The supply and demand for palm oil The relationship between CPO and crude oil El Niño and its impact on CPO production Supply and demand for palm oil CPO production has been particularly constrained during 2009.5%) (4.3 1.4 12.8 1.6 1. Malaysia’s production of the four main derivatives of FFBs – Crude Palm Oil. and Palm Kernel Cake have dropped in almost every month in 2009 when compared to the corresponding month in 2008.3%) (4.8 197.3%) (1.8 2009 165.335. 2009 Crude Palm Oil Month January February March April May June July August September Total 2008 1.0% 10.7 189.1%) (8.0% 12.395.492. This was mainly due to an increase in mature planted area. 2. This was the worst monthly drop since 2007.3 195.8%) (4.3%) 8. Research also indicates that fertilizer use is still an issue in the region.560.0% 5.0%) (4.1 176.4 183.4 176.5 402.600. Productivity in terms of yield has been weakening in Indonesia.5 335.5 162.0 % change (5. During the latter part of 2008. 3.0%) Jan 08 Feb Mar Apr May Jun 08 08 08 08 08 Jul Aug Sep Oct Nov Dec 08 08 08 08 08 08 Jan Feb Mar Apr May Jun 09 09 09 09 09 09 Jul 09 8. Malaysian Oil Palm Produce .8 1.9 373.4 318.2 1.0 385.4% (6.0% 2. Confidential 25 of 48 .2 1.7 180.0% 10. the lower use of fertilizers has decreased CPO productivity.3 159.484.9 1.2 1.6 3.0% 20.4%) (3.281.2008 vs.2 2009 1.0% (5.0%) 6. from 94.551.7%) (5.9 % change (9.457.7 167.8 162.4%) (6.7 346.7 Palm Kernel 2009 353.3%) (4.0%) (10.3% (3.199.9%) 6.0% 4.0% during the corresponding period in 2008. Malaysian palm oil stocks were 33.1%) Crude Palm Kernel Oil 2008 182.1%) (4.5 2009 183. 2009 | Ticker – WIL Oil palm sector: Short–term outlook Some of the key factors affecting the outlook on CPO prices in the near to medium term are – 1.9 1.556.0 174.9 1.330.2 365. The credit crisis has had an unexpected impact on yields.2%) (5.9 351.0% Palm oil production in Indonesia (% change y-o-y) Jan-Mar 08 Apr-Jun 08 Jul-Sep 08 Oct-Dec 08 Jan-Mar 09 Apr-Jun 09 % change y-o-y Source: Broker Research Source: Malaysian Palm Oil Board % y-o-y increase Absolute production in Indonesia has trended up in 2009. Inventories are also currently at the lowest levels since January 2008.6%) Source: Malaysian Palm Oil Board Palm oil production in Malaysia (% change y-o-y) 14.3 405.0% 0.7%) (16.5 353.228. Palm Kernel.0%) (3.0%) (3.2 1. Apart from adverse weather conditions.3 161.0 209.2%) (1.7%) 2008 372.4 1.2 175. The lead time for this trend is generally around six months.1 1.7%) (3.5 170.294.8 3. Palm oil stocks are lower than normal in the region.5 % change (6.7 402.6%) (1.3%) Palm Kernel Cake 2008 204.6 1. who form the mainstay of palm oil production in the region.0%) (4.7 1.6%) (3. Crude Palm Kernel Oil.2 364.7 381.495.4 179.3 186.4% (2.3%) (1.0% 30.9 167.3 165.0% 25.3 160.447.5 352.639.9 12.0% lower in June than in the corresponding months of the previous year. 8% 15.0% 15. But the situation has been made worse by the poor weather conditions that have affected harvests.0% 18.0% 12. CPO Stock/Usage ratio 20.0% 13.Equity Report | November 19.9% 15.0%) Jan Feb Mar Apr May Jun 08 08 08 08 08 08 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun 08 08 08 08 08 08 09 09 09 09 09 09 Jul 09 Palm oil stocks in Indonesia (% change y-o-y) 50.0% 10. as well as in other non-dominant CPO producing nations such as Papua New Guinea.0% 14.0% (10. This situation is expected to keep CPO prices in the upper bracket for the short term.0%) Jan-Mar 08 Apr-Jun 08 Jul-Sep 08 Oct-Dec 08 Jan-Mar 09 Apr-Jun 09 % change y-o-y Source: Malaysian Palm Oil Board Source: Broker Research % change y-o-y Lower Stock/Usage ratios expected to affect supply and pricing During recent months.5% 19.in this case 2008.3% 15.0% 50.0% 70.0% (10.8% 15.0%) (50.0% 30.0% 30.5% 13.0% 16.7% 13.6% 15. 2009 | Ticker – WIL Palm oil stocks in Malaysia (% change y-o-y) 90. and pollination. is expected to rebound in 2010 and 2011 owing to an increase in mature hectarage in Indonesia.0% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 16.0%) (30.0% 17. One reason for the lower stock/usage ratios that are currently prevailing is due to the ‘yield normalization’ phenomenon that usually occurs the year after a bumper crop .2% 15.0% 13.0% 11.0% Stock/usage ratio Source: Broker Research Confidential 26 of 48 .0%) (30.8% 18.1% 16.0% 10.0% 10.5% 19. This trend is expected to continue going forward. however. CPO supply. stock/usage ratios have been relatively low in the region when compared to their historical levels.7% 14.0% 19. 899.975.0 2.0 5. Both nations have large.0 4.850. as well as the gradual abolishment of protectionary tariffs and other import restrictions have played their part in the rising demand for palm oil. Confidential 27 of 48 .0 4000. and imports have grown apace over the years. As a result of the food crisis that peaked in 2008. This translates into increased edible oil imports. in what was the culmination of a long process of gradual liberalization that began more than a decade ago. The increase in per capita incomes in these nations.0% tariff that was previously in place was imposed to protect Vanaspati.0% 0. The Chinese stockpiling of palm oil.2009 ('000 MT) 8000.0%) (20. the state owned agency responsible for food purchases. The events that triggered the removal of the tariff in 2008 were the food crisis and the elections in the same year.950.223. But in the case of India and China. 2009 | Ticker – WIL Demand for palm oil – India and China are the leaders India and China together accounted for over 36.0 4.139.0% 20.300.0%) 2004-05 2005-06 2006-07 India Source: Broker Research 2007-08 China 2008-09E 2009-10E Stockpiling in China The Chinese government has been stockpiling food since the start of 2009. The 80.0% (10. growing populations.0 6.Equity Report | November 19.0 5.0 2006 Source: USDA 2007 India China 2008 2009 CPO demand growth in India and China 40. Reimposition of palm oil tariffs would drive up the cost of living at a time when food prices remain elevated. the reinstatement of palm oil tariffs seems unlikely.0 5.0% 30. a local oilseed. and corn has been recorded by the USDA and industry experts such as Oil World. Indian liberalization India completely liberalized palm oil imports during 2008. with the primary buyer being COFCO. Palm oil imports: 2005 . the current global recession has increased the likelihood of protectionary tariffs being imposed by nations to protect their domestic markets. The drought in northeast China and the delayed monsoons in India have affected soybean production in these countries in 2009.0% of palm oil imports during the year ended October 2009.0% 10. soybeans. both nations may have a vested interest in allowing free trade of agriculture. Given the example set by its precedents.0 2000. One of the primary reasons behind this is the concern that another food crisis like the one in 2008 would cause severe social unrest in the country.0 0.800. urbanization.0 6000. of which palm oil has traditionally had a significant share.0 3. 0 by 2010.0/bbl to USD 145.0 and USD 72. largely due to declining inventories and supply disruptions.0 600. and with crude oil forecasts projected to be in the range between USD 65. biofuels and others). wind energy. the CPO price in USD was supported at an average of 10.0 1400.0x crude oil (USD/bbl).0 600.0 1200.0/bbl.0 Jan01 Jul01 Jan02 Jul02 Jan03 Jul03 Jan04 Jul04 Jan05 Jul05 Jan06 Jul06 Jan07 Jul07 Jan08 Jul08 Jan09 Jul09 Mean: 10.0 400. With many research houses forecasting a gradual global economic recovery beginning sometime in Q4 2009 and into 2010. when biodiesel came into play and when crude oil prices surged from USD 60.0x crude oil prices. CPO versus crude oil prices (USD/MT) 1600. large incidences of defaults.Equity Report | November 19.0 200. 2009 | Ticker – WIL The relationship between CPO and crude oil The demand for alternative fuels has historically moved in tandem with the price of crude oil.0 0. as alternative sources of energy (solar energy.0 1200.0x from January – May 2009.0 Jan01 Jul01 Jan02 Jul02 Jan03 Jul03 Jan04 Jul04 Jan05 Crude Oil Jul05 Jan06 Jul06 Jan07 Jul07 Jan08 Jul08 Jan09 Jul09 Source: Bloomberg Crude Palm Oil Ratio of CPO price (USD/MT) to crude oil price (USD/bbl) 1600.0 800.0 Source: Bloomberg Crude Palm Oil (LHS) Ratio of CPO to Crude Oil (RHS) Confidential 28 of 48 .0 0.0-700.0 5. including government subsidies and incentives.0x due to the fall in crude oil prices.0x.0x 25. However.0 200. for CPO biodiesel producers. rising CPO inventories. this would imply CPO price in the range of USD 650. CPO is currently trading at 9.0 1000.0/MT. and the weakening economic conditions during the period.0 400.0 800. This formula or support level for CPO was broken in late 2008. when the ratio fell to a low of 6. or slightly below the average ratio as the 3rd quarter is the peak production period. and when economies are on a stronger footing.0 20.0 15.0 0. and the costs associated with producing it become more viable and attractive during periods when conventional energy is priced at a premium. when crude oil prices are stable. CPO has traded above this average ratio of 10.0 10. The support level for CPO (USD/MT) is expected to be at least 10. which is also the rough breakeven formula. Over the period between mid-2006 to mid-2008.0 1400.0 1000. 0 3. as well as overall CPO yields during El Niño years.2 3. Source: Broker Research Average Confidential 29 of 48 .0 2. All three incidences of the El Niño effect have had a deep-seated effect on CPO production.0 5.0% (5. resulting in an average drop of 3. El Niño and CPO production Hotter temperatures and reduced precipitation affects oil Palms by reducing the proportion of female flowers that yield more oil.0% 600.0% 200.2 81/82 83/84 85/86 87/88 89/90 91/92 93/94 95/96 97/98 99/00 01/02 03/04 05/06 07/08 Overall CPO Yield Black arrows indicate El Niño incidence years. CPO production growth and prices during El Niño incidence years 20. Source: Broker Research CPO Price (USD/tonne) Overall CPO yield during El Niño incidence years (tonnes/hectare) 4.6 3. There have been three El Niño episodes in the past three decades.0 800.6 2. In each case. in 1983. Below is an analysis of CPO production and prices.0% 1.0 1. where the average price of CPO in the incidence year rose by 43.4 3.8 2.Equity Report | November 19. and 2006. it was also observed that the market reacted to the fall in production. and its basic consequence is exceptionally dry weather.200.4 2.0 82/83 84/85 86/87 88/89 90/91 92/93 94/95 96/97 98/99 00/01 02/03 04/05 06/07 - 15. There is high variability in the strength and timing of the El Niño effect.0% 400.8 3. 1997. The entire ENSO cycle usually lasts three to seven years.0% in production.0 0. 2009 | Ticker – WIL El Niño and its impact on CPO production The phenomenon The scientific use of the term El Niño refers to the warm phase of a large warm/cold oscillation in the water and atmosphere of the Pacific region.000. The warm El Niño phase typically lasts for eight to 10 months. The complete phenomenon is known as El Niño/ Southern Oscillation (ENSO).0%) CPO Production Growth (%) Dark blue bars indicate El Niño incidence years.0%.0 10. El Niño was identified in the early 1990s. Overall CPO yield is calculated by multiplying FFB yield (Fresh Fruit Bunches.22. The yield fell 0. it is expected to have an adverse effect on CPO production. The mean of the data set is 3. which indicates variations in air pressure in the Pacific region Greater or abnormal degrees of cloudiness in the Pacific region Unusually warm temperatures along the Pacific coast The Malaysian Natural Resources and Environment Ministry.24 tonnes per hectare and the standard deviation is 0. as well as the Australian Bureau of Meteorology have issued El Niño alerts on the basis of data supporting the above indicators. Negative shifts in the Southern Oscillation Index. thus eliminating the variation brought about by the increase in the planted area over the period. followed by decline in production growth. 2009 | Ticker – WIL The above table charts the overall CPO yield over the last 27 years to show the drop in yields during years that have had episodes of El Niño. However.22 tonnes per hectare. especially in South-East Asia. which occurred in the 2006-07 period. but as yet uncertain. however.39 tonnes per hectare (two standard deviations from the mean) in 1982-83. which translates into a 7. Major El Niño Episodes 35 25 15 5 -5 -15 -25 -35 -45 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 Southern Oscillation Index Source: Australian Bureau of Meteorology Conclusion The onset of El Niño in the near future is expected. The three main indicators of the phenomenon are1. Confidential 30 of 48 . any decline in CPO production due to adverse weather conditions will exert an upward pressure on CPO prices. the impact was the mildest in 2005-06. The International Research Institute for Climate and Society (IRI) has predicted the possibility of a mild to moderate El Niño to be 85. used to derive CPO. the y-o-y drop in yield was around a quarter of a tonne per hectare. Though it is not the only determining factor. harvested per hectare) with CPO yield (CPO yield per hectare of plantation). 2. whereas the yield continued to be one standard deviation above the mean.0% for the months of September 2009 through February 2010. A review of the data highlights the impact of incidences of El Niño. Even in the most recent and mildest case. which was the worst case of El Niño’s disruption of productivity. In 1997-98. Both agencies expect El Niño to set in sometime during 2009. If it does occur.0% drop in production.Equity Report | November 19. 3. the impact was one standard deviation below the mean. Given the rising demand for palm oil and its derivatives. uncertainty and speculation about CPO production are expected to maintain or push up CPO prices in the near term. when the y-o-y change stood at 0. resulting in major price fluctuations in the market. assuming that the planted area remains the same. Meteorological indicators of El Niño – Occurrences of El Niño have typically been preceded by changes in air pressure and changes in weather. 0% of the world’s total exports.0 40.300.0 30000.0% of the world’s total imports.2009 ('000 MT. to 38.0 45000.1% India.200.0 83.4% Brazil. As a result. have very little value as standalone commodities. making soya bean the most widely crushed oilseed in the market. and Argentina are the key crop growing regions.8 million MT in 1994. 4.000.2009 ('000 MT) 90000.000. Brazil. USA.507.749. 9.0 57.0 15000. The storage life of soya beans and end products differ. while China is ranked at 4th with only a 7.2% China.0% in 2008. China alone makes up 54. 1.6% USA. Argentina. Only a very small part of all soya beans produced are used just as soya beans.859.0 32. 38.0% of the world’s total oilseed production. the EU. 27.4 million MT. and 18. and China.749. 4. while soya oil is sold mainly in the consumer market and is used in the production of cooking oil.0 87.6% share in global production.0.0 2006 2007 USA Brazil 2008 Argentina 2009 China has cemented its place as the world’s leading soya bean importer. Brazil and Argentina’s market share in the world soya bean market increased from 11. Its imports have grown nearly 46 times from 0. At the same time. 1. Brazil. 3. China’s soya bean shortage has increased significantly over the years.0% and 17. Soya bean: World Production .0% respectively. In the year ended September 2009. is the one of the world’s most widely consumed oilseeds. 2009 | Ticker – WIL Soya bean industry Soya bean. 7. 9. In line with growth in production. soya bean output from these four countries reached 185.0 59.800. % of total) Argentina. which are sold in separate markets. while the main consumers are China.0 million MT in 2009.0 57.0% in 1995 to 32. or Soybean.0 61. Logistically. and Europe. Soya bean and soya oil consumption has also dominated the world’s vegetable oil and protein meal consumption. Thus. and related derivatives. a unit of soya bean crop yields 82.500. consequently these regions are not likely to increase their import share in the future.001. making up 88.0 75000.000.0 48.500. with raw soya bean having a longer shelf life than its crushed end products.0. 15. Soya bean shortages for other major importers such as Japan.3% Paraguay.000. biodiesel. USA leads the world in soya bean production.1 million MT in 2009.0% of soya meal. Soya bean. and account for 89. Soya bean production in 2009 accounted for 53.0 46. with soya bean oil (SBO) being the second most widely consumed vegetable oil after palm oil.0.0 72. Brazil. The amount of meal and oil produced from soya bean depends on their respective yields. In 1995. Production and trade flow Soya bean is one of the most widely grown agricultural crops across the world. Soya meal and soya oil Soya meal is primarily used for the livestock industry because of its high protein content. Roughly. and Argentina.090. 3.0 0.0% and 6.3% Source: USDA Source: USDA Soya bean production 2006 . 57.0. while it has jumped significantly for Brazil and Argentina. USA. The top soya bean producing countries include the USA. The greatest demand for the oilseed comes from the crushing industry to produce two main end products – meal and oil.100. like most other oilseeds. Growth of soya bean production has been quite stable for the USA and China over the past few years. the trade flows between the top exporters and China accounts for the bulk of the world’s total trade in soya beans. making China the most important market for key exporters such as USA.0.Equity Report | November 19. most soya bean consuming regions have crushing capacities at the destination rather than the source of soya bean supply. 32. in 2008.0.9% Canada.0% of the total global soya bean production. 15. and Mexico have remained quite stable in the past.000. exports from Brazil and Argentina have dramatically increased in the past few years. the US soya bean export share was 73.0. 80.900.0% of soya oil. Confidential 31 of 48 .000. but it fell to 40.000.0 80. from almost nil in 1991 to almost 38.3% Other.0.0 60000. it is easier to ship raw soya beans rather than soya meal and soya oil.0%. making the South American soya beans more expensive due to storage costs. Thus. Global soya bean crushing by region . rapeseed.0.035. 6.0. Complementarity of US and South American soya bean exports to China South America and the US are thought to be complementary soya bean suppliers to China due to their different harvest seasons. key Chinese soya bean crushers like Wilmar typically rely on more than one soya bean supplying country to reduce supply risk. 3. but margins are low.0. Price fluctuations and volatility are driven mostly by supply fluctuations rather than demand drivers.6% Source: USDA Source: USDA United States.500. margins of Chinese do not move in sync with global crushing margins. incurring marginal storage costs. 5.2006 ('000 MT. This would lead to a lower supply of soya meal and soya oil to satisfy demand.2009 ('000 MT. Soya bean stocks reach their highest levels just after their respective harvest seasons. 17.3% China.888.234. 21.5% Brazil.6% India. 28. soya bean crushers may decide to store soya bean and reduce crushing if the supply is plentiful. mainly because of government intervention in the trade markets. soya meal is primarily a product for the feed industry.7% Soya oil and soya meal have different dynamics in relation to their own fundamentals. 15. which is just after the US harvest. Moreover. 47.0. The harvest season for US soya bean is October and November.7% United States.4% Argentina. 31.0. the South American exports to have a price advantage vis-àvis US soya bean exports.0. 16. crushing may not be able to satisfy the domestic demand for either or both commodities. 2009 | Ticker – WIL Market dynamics in relation to China The demand for the soya bean value chain has shown a steady increase over the past few years. competing with other feed ingredients such as corn and other coarse grains.0.725. thereby easing the pressure on prices. 31.0. 25. as the latter is relatively more stable. but the nation still has to import a significant proportion of its soy oil consumption.670.0. With increased consumption and demand for commodities. China.324. The situation is reversed during the November-May import period in China. 7. whose movement may be different to that of soya meal prices that are driven by local crushing intensity. As a result the availability of imports of soya bean may also affect soya oil prices. thereby impacting their prices differently. These trends imply that South America and the USA are seasonal complementary soya bean suppliers to China. with each dominating during different halves of the year.2% 7. 23. 23. 3.2% Brazil. 12. This results in an increase in margins.4% EU-27. Chinese authorities tend to control the pricing of raw soya beans and those of end market consumer products. As a result. forcing process to move differently from those of global markets.0. Therefore the soya bean trade in the Chinese import market is divided into two periods.285. South America exports freshly harvested soya beans to China. among others. To balance the situation. The supply dynamics for soya meal and soya bean oil depends on the total amount that is crushed.4% Others. thereby putting pressure on prices.Equity Report | November 19. 13. In China.0.400.6% Others. % of total) Global soya bean crushing by region . 11. For instance. 18. for instance. The prices of soya beans and its end products in China behave differently from those in the global markets.0.990. 12.0.6% India. crushed soya beans are generally adequate to satisfy the demand for soya meal. During June-October.500. 31. Conversely. 22. demand is likely to remain stable for the foreseeable future. while for South America it is during March and April. 45. Confidential 32 of 48 .9% EU-27.0. and sunflower oil.531. % of total) Argentina.700. On the other hand soya beans exported from the US are more expensive due to higher storage costs resulting from storing the beans well after the harvest season. this also indicates that China may have more bargaining power over both parties with respect to prices.389. 34. While soya oil competes globally as edible oil with palm oil. 41. Any increase in export prices from one party could result in increased imports from the other. 16. and a consequent increase in supply. which may or may not vary in accordance with production. is low or flat. However.18 MT of soya oil (18% yield) and 0. This has lead to relatively strong meal prices. Soya bean and oilseed crushers may also artificially drive up endproduct prices. region. Crushers may increase intensity even if the demand for a particular product. The trend is expected to continue for another two to three months. Confidential 33 of 48 . and volatility In theory. resulting in softening of prices. The processing cost is not significant for calculating margins. due to the lag in crushing the newly harvested crop. There is a positive spread if the changes in input prices are higher than changes in end-product prices. and a good harvest in the South American regions next year. as crushing margins increase.during periods when supply is high. along with processing conditions and efficiencies. The actual yield of crude oil and meal per tonne of raw soya beans is determined by the soya bean protein and oil content. the crushing continues at a slower pace as the incentive to crush is lower. or oil. 2009 | Ticker – WIL Soya bean crushing – Current scenario Soya bean prices corrected during the months of September and October of 2009 due to indications of record production in the USA later this year. one metric tonne of soya bean yields around 0. As a result. and with players postponing crushing to take advantage of lower soya bean prices later on. rising margins do not always translate to an immediate gain in soya bean spot prices. which in turn vary according to the supply dynamics of the value chain. when margins start decreasing. As a result. timing. Margins are dependant on prices. there is increased demand for soya beans. and timing of harvest. oil. Crushing intensity can be driven by increased demand for either soya meal. and crushing utilization is low. However. Some plants may hold inventory to last several months. such as immediately after the harvest period. among others. If the margin decreases or becomes negative. The calculation of margins depends on the yield of oil and meal from crushing a unit quantity of soya bean. by crushing lower quantities during periods when supply is high. Raw soya bean and soya meal/oil prices may even move in opposite directions . there is a fall in demand for soya bean. and raw soya beans is not perfect. crushing margins are simply the difference between end-product prices and input raw material purchase prices. The correlation between meal. Changes in prices for end-products and raw materials will be different as crushing utilization keeps on changing. but demand for the other commodity is high. these may vary depending on the crop.82 MT (82% yield) of soy meal. Crushing margins are dependant on scale. Crushing plants maintain seed inventory for crushing based on their holding capacity and strategy. Demand Side Factors Factors affecting end meal/oil prices Affects crushing margins Affects crushing intensity Affects demand for raw soya bean Affects input prices Soya bean supply Affects raw soya bean price Affects crushing intensity Affects soya meal/oil supply Affects soya meal/oil prices Affects crushing margins Supply Side Factors Margins and crushing intensity The incentive to crush soya bean at full capacity is more when margins are greater. either meal or oil. while some may hold a few weeks of inventory at any given time. When crushing margins start increasing due to increased demand for oil or meal. which have resulted in strong crushing margins of late. Generally. and this leads to gradually firming prices of soya bean. companies with large inventories can crush from stock rather than purchasing the raw material from the spot market. until crushing volumes pick up to put downward pressure on soya meal prices. and consequently margins. since soya bean supply is still not abundant.Equity Report | November 19. the crushed soya bean available to satisfy meal demand is currently limited. On the flip side. 0 200. and peak during the period between October and February.0 USA Soya bean Crush Margins (LHS) Source: Bloomberg China Soya bean crush margins (RHS) Market view places a premium on intelligence and size Players in the crushing industry take a fundamental view on prices for both raw soya beans as well as soya meal and soya oil prices. China crushing margins need not move in line with global crushing margins Margins for global soya bean crushers are generally higher around July-September.0 (800. September China peaks: October. the harvest season for the US and South American regions.0) Jan03 May03 Sep03 Jan04 May04 Sep04 Jan05 May05 Sep05 Jan06 May06 Sep06 Jan07 May07 Sep07 Jan08 May08 Sep08 Jan09 May09 Sep09 0. However. Also.0 (600. which is an important factor in capturing the spread from the market. Confidential 34 of 48 . For this reason. However.0) 80.0) (400. margins are lowest for Chinese crushers during this period. which force prices to move differently. the ability to vary crushing intensity and store raw soya beans increases. The supply of raw soya beans affects the amount available for crushers. thereby affecting the supplied quantity of meals and oils to the consumption markets.0 (200.0 120.000. it is not possible to achieve a perfect hedge.0 60. February 1. At the same time. profitability in the soya bean crushing sector is basically a play on margins. A key factor contributing to this effect is the government intervention in raw material and end-product pricing in China. which depend on the supply of raw material as well as demand for the end-products. very few market players have the scale and market significance to effectively determine the drivers for price movements in the markets. larger market players are expected to deliver better margins as compared the smaller ones who have less visibility. processors cannot completely control margins as there are a large number of processors.0 600.Equity Report | November 19.0 400.0) 20.0 140.0) (1. Also. In conclusion.0 RMB/MT USA peaks: June.000. 2009 | Ticker – WIL Similarly.0 40.0 800. and the industry is very competitive. the variation in crushing utilization due to supply and prices of raw materials also affects the margins of crushing plants. global soya bean crushing margins are low when Chinese margins are at its peak. But since the buying of soya bean is a continuous process which varies depending on the prevailing market strategy of either crushing more or less.USA and China USD/MT 160.0 0.0 100. Crushers try to lock in margins by taking up hedging positions complementing their production strategy. with scale. Seasonality in soya bean crushing margins . 2009 | Ticker – WIL Short term outlook The slowdown in soybean production because of droughts in South American regions had strengthened soybean prices since the beginning of this year.0 4. diminished soy meal and soy oil supplies due to lower crushing supplies may lead to stronger near term prices. crushers may postpone near-term purchases. China . As a result. and the destocking of soya bean in Chinese markets have led to pressure on soybean prices over the past few months.0 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 % growth May-09 Jun-09 Jul-09 Aug-09 60. Currently. This may make buying from the domestic market more attractive to crushers. As a result.0 5. The corresponding fall in soy meal and soy oil prices has been lower on decreased crushed soybean supplies. overall supply to world markets has lagged on a year-on-year basis.0%) (60. The Argentinean government imposed an export tax on key commodities such as soya bean and corn.Equity Report | November 19.0% 20. which strengthened soya bean prices during the early part of 2009. the Chinese government is expected to offer subsidies to domestic crushers as it looks to unload its soya bean inventory before the US harvest.0% 40. thereby reducing the demand for global soya bean supplies. improvements in South American production including favorable El Niño patterns for the region.0 0. However. consequently.0 3.0% 0. Soya bean prices strengthened early in 2009 due to the drought. where it is actively traded.0% (20. indicating strong production next year.0 2. Given the possibility of falling soybean prices. resulting in lower production and export volumes. and export tax policies in Argentina Soybean production in 2009 has been much lower in the past two years due to deficit production in Brazil and Argentina. Additional supply of soya bean could put further pressure on prices. which saw droughts earlier this year. Record Chinese imports due to government pricing policy Soya bean imports from China have touched record levels since the end of 2008 and through the first half of 2009 due to efforts made by the Chinese government to keep domestic prices artificially high. The impending rise in soya bean production has already been factored in the futures markets. China’s domestic soya bean prices are higher than global prices. near-term crushing margins are likely to remain strong. The move was made in an effort to keep soya bean planters from moving away from soya bean cultivation. Confidential 35 of 48 . which lead to lower acreage by farmers.0%) Imports (million MT) Source: Broker Research Recent correction in soya bean prices Soya bean prices have corrected in the past few months following indications of favorable production in key regions of Brazil and Argentina. According to some market data sources.Soya bean imports 6. in spite of a record soya bean crop in the USA this year. As a result.0%) (40. making the domestic inventory less attractive. leading to the recent correction in soya bean prices. Acreage data indicates a strong probability of a bumper harvest in the US.0 1. crushing margins have picked up significantly in the past few months. indications of a record US crop. while El Niño weather patterns favor crop plantation in South American regions. Chinese de-stocking may exert further pressure on soya bean prices The Chinese government has tried to auction its excess inventory of soya beans a few times in the past few months. which is a close substitute. the probable onset of El Niño could impact palm oil production. leading to higher prices. the outlook on soya meal and soya oil will remain tight. aided by strong soya bean production. 2009 | Ticker – WIL Conclusion The shortage in soya bean supply has lead to lower supplies of soya meal and soya oil. near-term crushing margins are likely to remain strong until supply of soya meal and soya oil pick up. Although crushing margins have been strong over the last couple of months. crushers may postpone purchases to take advantage of lower prices later on. and the strengthening of crushing margins owing to strong soya meal and soya oil prices. increasing the demand for soya oil. In addition. keeping in mind that fresh stock from the US harvest will not reach the markets until December -January. Also. Confidential 36 of 48 . resulting in increased spread. given the bearish outlook on soya bean prices. crushing intensity is low due to lower availability of soya bean for processing. This would put further pressure on soya meal and soya oil supplies. Ultimately. Since fresh stock will not be available before December.Equity Report | November 19. food consumption levels have grown disproportionately. energy prices affected agricultural primarily by way of influencing production and input costs. At the same time. depending on the scale of demand growth. the success of biofuels depends on petroleum based fuel prices as well as three other variables that directly affect the profitability and the environmental impact of biofuel. 2. adjusted for inflation.0-10. As a result. given the limited supply of land available for cultivation. and import and export taxes. 2.000. 3. these declines in real prices lead to the affordability of sufficient nutrition as well as a more varied diet. and Conversion technologies All of the above are currently in a state of flux. Population Economic growth. Confidential 37 of 48 . However. as a feedstock for biofuels has lead it to become an important contributor to increase in marginal demand. and a biodiesel plant’s ability to purchase vegetable oil are directly influenced by the prices of crude oil and other fossil fuels. this demand supply equilibrium is expected to drive up yields significantly. than if there is drop in demand. Together with growing per capita income around the world. the cultivated acreage. and is driven mainly by income and population growth. or a rise in supply. Though traditionally the pricing of vegetable oils were determined by mutually independent factors like the weather in different regions of the world. The current demand growth for food and oleochemicals is around 3. particularly fertilizer and diesel prices. Vegetable oils are more likely to become cheaper (for the food industry) if there is a drop in crude oil prices. 3.000. These factors coupled with structural trends in demand. and improvements in productivity. Edible oil and overall food price re-flation From 1950 until just recently. the prices of oils and fats may break away from the constraints of relative crude oil pricing over a long-term horizon of around 10 or more years. research forecasts suggest that incremental production will continue to grow slower than the past two decades. there is much speculation as to what the industry will ultimately turn to for its feedstock/technology/end product of choice. On the supply side. and presently.0-4. Cost and availability of feedstock Government regulation. This gradual increase in overall demand for grains and oilseeds.0 range globally (adjusted for purchasing power parity). Biofuels –a note The application of vegetable oils. with their large populations. the prices of the various edible oils have displayed an increasing degree of correlation over the past 24-30 months. and food prices in nominal terms are likely to be strong over the next decade. and demographic dynamics would suggest that the correction that is witnessed in food prices could be a near-term event. the ability to meet this demand over the long term may be limited. and once food prices have adjusted. a driver of prices. 2009 | Ticker – WIL Edible oil sector: Long-term outlook The long-term dynamics for the edible oil sector are predominantly driven by – 1. food prices will continue its multiyear agflation. there is a consensus that biofuels will be a key component in meeting energy needs for transport in the future. and China.0% a year. Due to the strong correlation between CPO and crude oil. increased urbanization. the main price determinant in this situation is the relative price of crude oil. However the technology behind extracting biofuels from vegetables and vegetable oils is still in its nascent stages. India. and consequently. supply. Until 2005-06. and higher incomes are pushing up the global demand for food. An Ethanol plant’s ability to pay for corn. and Energy prices High prices may drive an increase in output in the edible oil sector.Equity Report | November 19. Yet. In the longer term. The result was a long-term decline in inflation-adjusted food prices. which are also interrelated. Barring a major move into GMO crops. The three factors are – 1. evolve. so any investment today will ultimately also depend on how these factors. But due to the increasing correlation between the energy and commodity markets. food prices are still close to historical lows. fuel prices influence production costs as well as crop demand. but an increase in supply is unlikely to reduce prices as significantly as in the past because of the potential biodiesel market. including palm oil. demand growth in agricultural commodities did not keep up with the ability of farmers to produce. combined with a decline in investment in agricultural productivity lead to a reversal in the decline in real food prices during the period after 2003. Long-term demand and supply With annual income levels having reached USD 5. which accounts for between 50. as in the case of corn and vegetable oils. When the feedstock is fungible with food. the demand and supply dynamics of biofuel producers may not be the only factors affecting prices. Since vegetables oils account for a majority of productions costs. As a result. research grants. Confidential 38 of 48 . who have raised the issue of the destruction of rainforests for cultivation. in time they are expected to diversify in terms of geographies and technologies and move towards greater vertical integration. the last entrant usually has the advantage of access to the newest technologies in an industry that is driven by the lowest cost of production. But on the other hand. especially considering that feedstock costs vary greatly by geography. the environmental impact resulting from the cultivation of such fast growing trees and plants is as yet unknown. but are evolving and likely to change.0-80. particularly as supply is expected to exceed demand in the near term. especially in cases where there is an unprecedented rise in prices. has lead to the use of non-food. Conversion technologies In the commodities industries. fast growing crops like Jatropha. making some regions more viable for biofuel production than others. However. 2009 | Ticker – WIL Feedstock costs and consequences Feedstock costs. environmental concerns by developed nations. but ultimately the high initial capital investment is offset by the lower costs of the feedstock that replaces the conventional ones. using food for feedstock is a potentially sensitive issue. Given the number of options available to biofuel manufacturers. export-import trade flows. thereby making regulatory changes a major risk factor for the industry. vary significantly by region. tariffs. Government policies have so far been positive for the biofuel sector. and famines also affect prices. and so its price volatility has a marked impact on the producer’s returns. Government regulations. local demand and supply dynamics. New conversion technologies will significantly increase production costs. players who can sign up feedstock supply contracts and end market contracts may derive the benefits of an early start as land and other resources are limited. In addition to this. that are capable of growing well in relatively arid lands.Equity Report | November 19. and mandates have helped drive both demand as well as profitability of the biofuel industry. Government regulations Subsidies.0% of biofuel production costs. biodiesel margins are very dependant on subsidy policies and feedstock pricing. 4% over the same period last year boosted by strong performances in Q2 and Q3 2009.7 million.0 million. to 17.61% stake sale of its China entity to the Kuok Group.9 billion. 2009. Despite the Group’s weaker performance during the quarter. stood at USD 8. at USD 292.4% as compared to the corresponding period during 2008. Segment Analysis Merchandising & processing – Palm and laurics Revenue for the current quarter was stood at USD 3. from 6. 2008. revenue for Q3 2009 fell 13. 2009.7 million due to tighter margins mainly due to forex gains that were recorded for the same period during 2008. This is reflected by the fact that 86.2x for the year ended December 31.0 million as a result of sharp improvements in segment margins when compared to 9M 2008. though segment growth may be largely attributed to improved margins.2 billion in 2008.0% increase in sales volume during the quarter was offset by lower commodity prices.5x. The total liquidity available at September 30.0% during the quarter owing to falling commodity prices. as a result rising raw material prices and price intervention measures taken by the Chinese government. Wilmar’s interest coverage ratio improved during 9M 2009. Despite the lower revenue.0% were utilized at September 30.5 billion.7% as compared Q3 2008.0% for 9M 2009. Higher production volumes due to maturing hectarage resulted in a 10.0% or USD 56.9% to USD 111.0% at the end of 2008.0-16. At the same time. up from USD 7. Revenue for the quarter was down 14. 2009 was up 24. mainly inventories and receivables.4 million. lower production cost per MT. The segment also witnessed tighter margins due to increased competition from other players as a result of the weakening demand.0 billion.3 million. due to lower average CPO prices. Plantations and palm oil mills Revenues for the quarter ended September 2009 was down 7.0 million to USD 169.6 billion or 55.6 million during Q3 2008.Equity Report | November 19.1 million as a result of the strong performance of the segment during the first half of the year.4x . The level of working capital required varies with commodity prices and sales volumes. as compared to 47. pretax profit for 9M 2009 increased by 11.0% to USD 41.0% at USD 1. up from USD 482.8%.1% of Wilmar’s outstanding debt consists of short-term debt.2x for the year ended December 31. This was partly due to the reversal of redemption interest on convertible bonds that was provided during the first half of the year. The stronger profit for the segment was mainly due to higher production volumes. Interest expense dropped significantly to USD 1.1 million mainly due to the fact that margins in China were affected during the corresponding period in 2008. Consumer products The segment witnessed higher sales volumes.0% higher at USD 29.5% rise in FFB production as compared to Q3 2008. Though revenues were down 26. Confidential 39 of 48 .0% to USD 1.5 billion representing a 30. Liquidity and gearing Wilmar has over USD 15.3 million in Q3 2009 from USD 97. Wilmar’s debt to equity ratio stood at 0. of which USD 8. pretax profit for the period was 40.0% decline when compared to the same period last year. A large proportion of Wilmar’s borrowings is used to finance working capital requirements. 2009 | Ticker – WIL Recent financial analysis Wilmar International posted strong third quarter results on the back of organic growth in key segments as well as exceptional gains resulting from a 1. This was mainly due to lower demand for agricultural commodities during the period. pretax profits rose by more than 2. up from 0. Revenue for 9M 2009 stood at USD 792.3% q-o-q. As a result. Net income was up 35. from USD 49. 2008. partly due to the reversal of cumulative redemption interest on convertible bonds provided in the first two quarters of 2009.6 million during Q3 2008.3x for the period ended September 30. while Net income for the 9 month period ended September 30. while pretax profits rose by 14. the segment’s pretax profit for the quarter rose sharply by 47. Net income excluding the exceptional gain from the share sale stood at USD 486. Pretax profit for the 9M 2009 also fell 24. 2009. Q3 is historically a strong quarter for the Group. Merchandising & processing – Oilseeds and grains A 12. Profit before tax for the quarter decreased by 36. The Group instituted a price cut of between 8.7 billion in credit facilities. as well as improving margins during the quarter. The provision was no longer considered necessary as Wilmar’s share price was above the conversion price. including unutilized credit facilities and free cash available. and some forward sales at higher prices. growth in oil consumption in China is one of the main drivers of Wilmar’s growth. So far. Currently. The imposition of tariffs on Wilmar’s products could adversely affect imports by these nations. • Indonesia’s export tax on CPO Indonesia’s prohibitive export tax on CPO is aimed at promoting stable domestic supply and prices. system overcapacity. and Dreyfus have announced oilseed processed capacity expansion regions in the USA. particularly if less rational players enter the market and disrupt the balance between soya oil. Bunge. if CPO production in Indonesia increases from maturing plantations and the development of existing unplanted land banks.0 million MT by 2010. Also. and the decreasing share of domestic players in crushing as key concerns for the industry. the onset of El Niño could lead to an increase in the demand for soya oil. more capacity is expected to come online for Wilmar in the near term. Wilmar has a January 2010 deadline by which it has to list its business. and (iii) discouraging any player from having more than 15. The Group actively tries to mitigate this risk by hedging feedstock requirements.0% of China’s total crushing capacity. which is a close substitute for palm oil. While this may not have a significant impact on processing margins in China. where Wilmar has a dominant market share. China’s National Development and Reforms Commission (NRDC) has highlighted the reliance on imports. Wilmar would likely be affected if these proposed guidelines are enforced. Wilmar may become a net seller of CPO. This could lead to price controls on Wilmar’s products. Wilmar has maintained an impressive track record in the timely purchase of raw materials. the Chinese government imposed a price freeze on Wilmar’s cooking oil. the global recession has increased the likelihood of the reinstatement of tariff barriers. and premium consumer packs. • Government policies and tariffs The Chinese and Indian governments may be keen to keep food inflation low. Forecasted profitability and margins may therefore be affected if it does not occur. (ii) promoting consolidation among domestic players. On the other hand. • Demand destruction in China Currently. overall industry margins could witness pressure. • Biofuel demand and crude oil prices Wilmar currently enjoys strong biodiesel profitability. On this front. and a significant drop in crude oil prices. Since Wilmar has had a longstanding presence in China and China’s demand for soybean is strong. following the recent food crisis.0 million MT by 2012. The targeted consolidation among domestic players could result in greater competition for Wilmar. there could be a significant slowdown in consumption of vegetable oil. Moreover. estimates indicate that Wilmar already owns more than 15. • Increased competition and capacity ADM. • Regulatory risks concerning capacity expansion in China The increased consumption and demand for soya bean has lead to various regulatory concerns over the past 2-3 years. In January 2008. Wilmar already has new licenses to build crushing capacity in China. and soya bean prices. Measures proposed to counter these issues include (i) limiting overall capacity in the system at 75. Confidential 40 of 48 . and the bulk of its CPO produce is processed locally into refined products. meal. the impact on Wilmar is limited as it is a net buyer of CPO. and gradually reducing it to 65. which could ultimately benefit soya bean crushers and refiners like Wilmar. However. If the Chinese economy slows down. Its stock witnessed a relative weakness in price following the announcement. • Fluctuation in raw material prices – CPO and soya beans Wilmar’s processing units are subjected to daily market price volatilities. which was later rescinded in December. Any direction regarding the listing is expected to be a key stock catalyst in the near term. occasionally returning extraordinarily high profit margins as a result. Cargill. However.Equity Report | November 19.0% of total capacity. • El Niño The bullish outlook on CPO prices in the industry is partly based on decreasing production resulting from an episode of the El Niño phenomenon. especially in developing nations. risks include reduced government support in the EU for biofuel. failing which the Group will have to restart the process. making it theoretically implausible for the Company to expand its soybean crushing capacity. 2009 | Ticker – WIL Risk factors • Delay/Expiry of China Listing A weak IPO market in China and Hong Kong has been cited as the reason for the delay Wilmar’s China listing. Equity Report | November 19. as well as some losses. especially if exchange rate volatility increases. which may mitigate some of the trading risk. 2009 | Ticker – WIL • Trading risk The Group also takes active commodity trading positions to hedge its raw material price risks as well as to realize opportunistic gains in price volatility. Confidential 41 of 48 . can be detrimental to productivity. • Natural disasters Bad weather and crop disease. • Foreign exchange risk Wilmar’s operations are widely exposed to fluctuations in currency exchange rates. Its Palm and Laurics costs are largely denominated in Renminbi. Wilmar’s revenues from the Oilseeds and Grains segment are denominated in Renminbi. On the other hand. while sales are denominated in US Dollars. particularly if centered on Wilmar’s plantations. JVs and asset injection Wilmar has plans to enhance growth through acquisitions and JVs. the size and scale of Wilmar’s business enables it to maintain an extensive ground network that provides useful market intelligence to its trading unit. Animal disease can impact demand for soya meal. However. Though forex risk is mitigated by extensive hedging instruments like forward contracts. and these transactions may be accompanied by integration risks. This mismatch could potentially affect the Group’s operating margins. it may be difficult to achieve perfect hedge. this component of its business operations adds a degree of uncertainty to earnings. With Wilmar having historically posted substantial paper trade gains. while costs are incurred in US Dollars. • Acquisitions. processing. with CPO prices set to rise in the short-term. notably. • Current industry fundamentals represents a ‘Best of both worlds’ scenario for Wilmar Wilmar’s oil palm activities are concerned with the entire value chain of cultivation. Confidential 42 of 48 . expected to continue in the foreseeable future. indicating sufficient room for inorganic expansion through acquisitions. China and India. Wilmar’s market presence includes the USA and many developed countries in Europe. processing and marketing. With regard to soya bean and oilseeds. offers Wilmar the opportunity of expanding an already dominant market presence in these countries. Its size and scale enables it to operate at significantly higher margins as compared to its peers. an increase in supply of soya bean due to bumper harvests in the US represents an opportunity for crushers like Wilmar to boost margins on the back of lower prices and sustained demand for soya bean and its derivatives. so there does not seem to be an immediate need for expansion with regard to its processing and refining activities. Its growth prospects in these regions are backed by the strong demand for vegetable oils and other refined products. Its mid-stream facilities already process much more than what is generated internally. this provides significant scope for organic expansion as far its plantation business is concerned. • Diversified revenue streams as well as market exposure Wilmar’s core revenue is derived from a number of sources that include a combination of upstream. Both China and India are nations with growing populations. and downstream activities that collectively encompass the entire value chain of vegetable oil origination. This degree of diversification adds a level of stability to the business. This upward trend. 2009 | Ticker – WIL Key investment highlights • Relatively resilient business model Wilmar’s integrated agribusiness model partially insulates the business from sudden shocks in commodity prices.3x. refining. with a Debt/Equity ratio of 0. the Group is involved only in crushing refining. It also gives the Group better pricing power and a vast intelligence network that enables it to time its purchases and take trading positions to its benefit. rising per capita income. • Significant scope for organic and inorganic expansion Wilmar has a large sections of oil palm hectarage that are yet to mature or be developed. All of this has contributed to them being among the largest consumers of oil palm and oilseed products. and other midstream/downstream activities. and consumer packaging of palm oil products. The outlook on the oil palm sector is positive. The Group also has relatively moderate gearing. and extract additional margins at different levels of its value chain.Equity Report | November 19. • Growth backed by strong fundamentals Wilmar’s biggest markets are the emerging nations of south and south-east Asia. On the other hand. midstream. and where urbanization is progressing at a rapid rate. as well as the emerging markets of Asia and West Africa. 5 SGD 10.0x 10.37 4. CY10E EV/EBITDA vs. Our main assumption for the period 2015-2019 is decelerating revenue growth from 14. We expect the Group to achieve our target valuation in the near to medium term. which is 16.0x 16. Independent Research 12.0x 18.26 DCF (EBITDA) DCF (Perpetuity Growth) EV/EBITDA 2010 Price/Earnings 52-Week High/Low SGD 7.0% Target Price 7. and vertical integration is relatively unmatched by any of peers. in our view. Wilmar’s comparable set consists of South-east Asian players involved in one or more of upstream/midstream/downstream activities in the palm oil sector.18 Current Price SGD 6.0% 20.7x 2010 EBITDA. Potential price triggers.0% in 2019.0% 0. Our valuation reflects the volume growth that we believe Wilmar will achieve over the course of the forecast period.82 6.0% Hap Seng Plantations 10.24 7.22 Confidential 43 of 48 .26 7. we believe that the relative valuation is justified owing to its unique business model. Our two stage DCF analysis discounts cash flows for a further five periods beyond the financial model’s forecast horizon of 2014.55 4.63 30.22.0% Wilmar International 15. 5.5 SGD 2.68 5.0x (5.0% 2.Equity Report | November 19. we conducted a Discounted Cash Flow Analysis of Wilmar International based on the EBITDA Exit multiple method as well as the Perpetuity Growth method. 2009 | Ticker – WIL Valuation analysis We have initiated our coverage of Wilmar International Ltd.0x Astra Agro Sime Darby Source: Reuters.50 3. SGD 12.00 Valuation Method DCF (EBITDA) DCF (Perpetuity Growth) EV/EBITDA 2010 Price/Earnings 52-Week High/Low Average Value Weight 8.0% in 2015 to 10.0x 6.0% 20.0x 14.35 9.98 8.7x our forecasted 2010 EPS.0x 4. would be the announcement of the IPO date for Wilmar’s China business.0% 30.0%) Expensive Discounted Cash Flow analysis As part of our valuation.67 2.82 7.5 9. as well as any definitive news regarding the probable onset of El Niño weather conditions at the end of the year.5 SGD 8. This premium is reflected in Wilmar’s current share price.0% Cheap 20.5 SGD 4. varied revenue streams. Though Wilmar is expensive in relation to its peers. Public comparable analysis We have conducted a Public Comparable analysis as part of our valuation. or 12.32 5.0% Indofood Agri Resources Kuala Lumpur Kepong (KLK) IOI Corp.0x 8.5 SGD 0.0%) PP London Sumatra Indonesia (10.0% 0. CY08A-10E EBITDA CAGR 25. Wilmar’s combination of size.5 SGD 6. with a “Buy” rating and a price target of SGD 7. 9 38.962.0% 6.6) 5.2% 2016 $67.4) 0.753.3) 7.5 30.9) 3.056.6% 2017 $76.0% 10.0% 10.6 42.2 29.7) (1.65 $5.4 9.2) 0.084.052.472.448.7 15.0 30. .9 (302.376.44 $6.4% 5.829.7 (1.6 11.260.4 40.254.951.2 12/31/09 $5.6 3.525.1) (906.5 (695.052.0 2.2) 0.0% as of 09/30/09 $3.5x $46.3) (1.501.7 0.0 33.891.2% Equivalent Perpetuity Growth Rate 10.054.8 36.9 (87.5) (2. 2014 $52.0 801.7 3.0 2.286.867.509.203.984.2 29.4 5.0x $36.5% 11.3 3.2% 5.5% 2018 $84.9) (242.952.0) 0.022.0x $33.5x $42.0% 2.8 10.8 33.7 8.826.0) 671.2 (87.321.470.9 39.723.0 28.0% 11.604.382.6 18.3 15.220.9 43.377.624.383.6 15.591.6% 6.5) 3.5 42.5x $6.698.6 3.579.9 (87.4 5.7) (1.722.074.6) (1.5 (785.7) (1.50 $6.69 $5.738.018.9) 6.6 (5.3 4.742.5 42.6 Net Debt Discount Rate 10.2 (60.7) 7.2% 5.6 37.768.546.7 (87.074.468.0% 4.8 (609.623.426.934.348.92 $5.96 $5.8) (2.0 4.2%) 2015 $60.0x $6.Equity Report | November 19.9 38.6 7.6 254.033.3 (0.9 31.4 27.20 $5.8 15.146.3 10.534.354.3 879.97 30.151.9 35.5 NA 2010 $25.579.7) (2.0% 4.760.2 42.7 NA 2011 $30.425.0x 4.3 15.3) 2.1 10.6 510.899.436.971.6 15.524.0 785.3 (87.3 609.1 427.7 (29.3 40.0% 11.8 (21.43 $5.7% 5.6) 0.401.0x $40.6 3.060.330.301.484.9 8.460.579.011.0% 473.884.6 38.0% 5.579.4% Confidential 44 of 48 .2%) Fiscal Year ended December 31.8 10.5 (87.0 636.2% 4.5% 4. except per share data) Quarter ended Discounted Cash Flow Analysis Sales EBITDA Less: Depreciation & Amortization EBIT Tax Rate Tax-effected EBIT Plus: Depreciation & Amortization Less: Minority Interest Less: Capital Expenditure Less: Changes to Working Capital Less: Changes in Other Items Unlevered Free Cash Flow Unlevered Free Cash Flow Growth Rate Current Share Price DCF Share Price % Premium/(Discount) $4.58 $5.5 37.068.203.1 6.6 31.8 39.864.7 44.444.0 25.9 359.061.3 30.3 15.567.385.529.247.4%) 2012 $36.764.019.9% 2013 $43.0% 2.9 10.EBITDA Exit Multiple (in USD millions.7) (464.198.2 519.869.9% 2019 $92.7 37.141.6 3.782.15 $5.9 617.6 + B PV of Terminal Value as a Multiple of EBITDA 10.6) (1.9 15.262.6 10.926.7) (1.5% 12.6 2.2) 0.7% 6.818.652.6) (1.971.113.7 302.394.0 3.0) 672.5x 4.2 Share Price 11.2 40.7) (761.19 10.6) (0.6) (549.0 60.88 $5.8 695.638.947.423.5 15.0% 3.2) 249.2 35.0 40.6% 10.40 11.0x 4.1 976.5% 12.090.6 (879.966.9 10.400.8) 556.1% 10.2 (427.0) 0.1% 6.0 4.0) (1.5% 11.7 31.8) 4.DCF Analysis .3 (87.127.3 22.579.2) 5.282.7) 0.792.599.75 $6.8 (87.0 35.043.844.622.9 15.7% 5.2 15.987.0x $44.019.7) (422.1 33.0% 3.3) 2.24 $5.867. 2009 | Ticker – WIL Valuation – EBITDA exit Wilmar International Ltd.7) (1.289.3 (87.0% 2.9 (359.2 40.7) (1.793.5 = C Enterprise Value 10.4) (0.146.5 (976.5x $35.685.61 11.0) (855.7 (510.3% EBITDA Exit Multiple method A Discounted Cash Flows Discount Rate 10.184.0x $47.9% 6.0 565.6 (87.0% (2009-2018) $11.5 11.3 1.0% 6.777.8 Equity Value 10.8 45.0x $6.9% 5.0x $44. 41 $4.9 8.8 24.9% 2013 $43.0% $43.3 35.7 8.5) (2.436.25 $5.835.7) (422.723.4 29.274.80 $5.126.0 33.2) 0.470.976.7) (1.2 40. except per share data) Quarter ended Discounted Cash Flow Analysis Sales EBITDA Less: Depreciation & Amortization EBIT Tax Rate Tax-effected EBIT Plus: Depreciation & Amortization Less: Minority Interest Less: Capital Expenditure Less: Changes to Working Capital Less: Changes in Other Items Unlevered Free Cash Flow Unlevered Free Cash Flow Growth Rate Current Share Price DCF Share Price % Premium/(Discount) $4.385.8 44.2) 0.2) 0.1 427.1 976.0% 4.42 $4.0) 0.574.4 34.0 28.330.1 5.256.0% $39.3x 7.5% 11.8) (2.9) (242.3 (87.074.5% 10.2 (427.5 15.9 15.1 37.5 35.525.6 25.2) 249.005.5 (695.6 15.260.3 15.Equity Report | November 19.952.112.652.520.8 10.6 (879.9 617.9x 8.377.7) (1.090.0% 9.951.556.626.6 (87.5 27.127.7 0.1 29.6x 9.19 $4.638.8 41.187.0% 2.DCF Analysis .9 (302.7x 5.3 3.6 15.3 39.3 (87.0 801.0 60.282.6 7.945.1 4.5 (976.401.4%) 2012 $36.9 359.060.145. 2014 $52.0% 11.1 31.685.899.5% $6.3 Equity Value 4.2 (60.4 5.9) 3.893.6x 9.3 15.423.8 (21.048.6) 5.579.0) (1.7 (510.2) 5.0% 473.301.9x 8.0% 11.58 $5.8 15.98 $4.3) 2.0 4.867.579.6) (549.48 Confidential 45 of 48 .2 (87.0 2.0% $6.7 (87.0% $7.3 22.5% $35.6) (1.4 9.061.7) 7.8 33.501.926.400.7 32.56 $4.891.6 254.5 NA 2010 $25.146.832.7) (1.792.3) 7.0% $32.0x 8.8) 4.3 1.068.3 15.173.2 519.7) (1.382. .796.7 3.339.2 15.6 Equivalent Terminal EBITDA Multiple 4.0% as of 09/30/09 $3.9 (87.55 21.468.524.484.9 39.3x 7.0 3.579.8) 556.3x 4.9) 6.0) 672.1) (906.1 26.7x 7.473.482.151.0% 6.512.0% 11.043.695.5% $42.793.9 10.3 4.1 32.984.164.4 26.262.096.9 30.0% $38.9% 2019 $92.043.67 $4.52 $5.5% 2018 $84.0) 0.0 4.296.074.7) (761.919.7x 10.9 31.764.2 29.394.0 28.622.7 (29.5 (785.2x 4.0 785.7) 0.0 25.5% 12.738.940.7x 8.0% $46.760.7 15.3 (87.4) 0.579.8 (609.5 27.717.Perpetuity Growth (in USD millions.254.5% $46.06 28.624.6) (0.7x 9.0% $50.4 37.022.994.844.400.579.9 (359.987.8 695.01 Share Price 4.9 32.579.2% Net Debt Discount Rate 10.05 $5.6 510.7 4.1 6.09 $6.7 21.018.9 (87.7) (1.6 18.324.2%) 2015 $60.6% 2017 $76.829.019.0 22.0% 10.1 4.4 5.3) (1.6) (1.9 15.0% 4.448.5% 12.979.0% 5.0% (2009-2018) $11.8 30.3 879.4) (0.6 (5.205.607.7 5.7) (464.8 (87.6) (1.6 2.6 12/31/09 $5.585.2%) Fiscal Year ended December 31.0% 2.7) (2.7 36.0% 10.382.0% 3. 2009 | Ticker – WIL Valuation – Perpetuity growth Wilmar International Ltd.0 2.220.7 20.2% Perpetuity Growth Rate method A Discounted Cash Flows Discount Rate 10.5) 3.425.884.623.7 = C Enterprise Value 4.6) 0.0 636.1 5.7 36.033.074.426.6x 8.5% 11.3 (0.23 5.971.698.1 10.971.6 3.7 NA 2011 $30.0% 3.286.6 3.0% 6.6 + B PV of Terminal Value as a Perpetual Growth Rate of 4.203.7 302.2% 2016 $67.0 565.5 23.3) 2.88 $4.6 3.084.6 10.376.3 609.7) (1.0) 671.235.933.818.7 (1.5 (87.0% 2.0) (855.6 3. 635.9 4.2 1.1 $298. (USD in millions.178.697.209.987.8 $14.8 2.2 $17.5% 12.1 3.9 $0.5% 15.0% 356.7 $1.7 1.027.4% 14.6% 10.008.6 29.6% 7.3 3.9 2.135.200.7% 14.1 1.383.860.3%) 21.0 124.0 10.9% 14.606.524.4 699.5 2.0% 13.239.5 25.6 1.0 4.9% 3.6 2.3% 8.1 1.1% 10.7% 13.5% 5.392.6 336.935.9 1.2 2.5 3.Equity Report | November 19.160.171.062 $24.005 $23.4% 10.3 3.7 479.3% 24.7% 10.5% 135.1 1.1 36.000.858. 2009 | Ticker – WIL Key financials and ratios Fiscal Year ended December 31.588.868.657.9% 7.5 411.401.871.4x 13.689.8 7.6 1.0 2.0 6.5 (1.5% 15.8% 5.003 $13.060.5 940.5% 11.2 1.016.145.017.9% 7.158.1x 1.3% 30.6% 11.1 $1.404.979.9 558.0 6.5% 10.1 29.2 2.1 1.3 14.6% 13.0 3.045.9x 165.1 2.153.4% 21.1% 8.156.245 $0.5% 10.6 3.455.2 1.1 8.093 $0.998.932.7 31.6 4.934.525.8 46.1x 14.200.685.325.0% 10.8% 170.448.0 $0.1% 173.8x 8.9% 11.213.378.6% 7.8 $16.8 2.5 368.1 1.1x 1.9% 16.610.819.4 10.9% 15.1x 18.6 4.2% 10.765.6 7. Plant & Equipment Total Assets Liabilities Revolver Total Current Liabilities Loans & Borrowings Total Liabilities Minority Interests Total Shareholder's Equity Total Debt Net Debt Cash Flow Statement Additions to PP&E Free Cash Flow Key Operating and Financial Ratios Growth Rates Sales Growth EBITDA Growth EBIT Growth Net Income Margin Gross Margin EBIT EBITDA Net Income Profitability Return on Assets Return on Capital Employed Return on Equity Leverage Ratios Total debt/ equity Net Debt/ Equity EBITDA/ Interest Expense Valuation Ratios P/E P/B EV/EBITDA 49.510.3 3.6 1.0 8.466.252.200.940.758.3% 5.9 $1.0% 4.2x 28.7 16.4% 15.0x 10.4 7.555.6% 9.0% 13.3% 4.7 $19.7 182.7 986.6 1.5% 20.559.0% 100.6% (23.308.8 $12.464.067.135.3 1.4 4.5 1.8 2.507.622.648.965.9 479.1% 77.200.330.0 7.412.645.789.7x 2.5 65.2 25.9 $9.012.140.3% 50.3 114.625.8x 2.140.0 1.1 479.7 3.5% 15.0 4.240 $0.6% 5.2 $3.7% 159.283.6% 107.3 4.0 6.016.0 7.5% 15.7x 2.4 2.0 436.3 59.082 2006 2007 2008 2009E 2010E 2011E 2012E Confidential 46 of 48 .345.2 $0.1x 20.0 53.631.000.621.3% 9.3 1.1 2.084.362.1 1.5% 16.7 $982.8 1.9 479.9 2.7% 6.893.220.509.4% 19.4 2.8 2.7x 12.1 221.5 610.5 5.531.601.4 $0.316.1 223.293.9 5.6 338.181.162.4% 22.954.4% 21.6 406.4x 35.2 1.3 2.3 1.5% 49.8 482.817.347.893.677.5x 5.8 580.857.2 $0.000.4 2.8 $11.8 30.8) 1.312 $0.3% 13.5% 7.225.154.0x 2.6% 12.5 (815.867.5% 3.5 1.3 4.7 215.5 4.0 $17.960.784.3x 11.2 14.6 (181.3 2.021.474.411 $0.9) 544.353 $0.0% 3.7x 24.6 5.7 $0.038 $17.3 19.2 3.999.2x 39.306.8% 11.4 3.000.6 2.7 818.0% 6.3 1.128 $0.0% 24.3 26.4 $0.0% 21.1 1.0 $967.1 $2.9x 53.7% 18.8 $15.0x 19.245.8x 61.071 $29.3% 10.6 21.0 2.140.782.4x 32.7% 8.727.7% 6.9) 1.8 3.390.326.267.2% 15.0% 15.556.2x 11.0 6.959.2% 14.221.7% 11.853.1% 134.1 2.2x 7.8 4.791.1 829.975.4 2.160.6 22.3 3.3 4.738.3 1.378.590.437.171.9 $1.0 6.575.2 3.8 933.378.147.125.513.4% 10.1% 175.6 2.7% 15.3 1.252.829.7x 13.1 $6.0% 100.5 $21.4% 170.0% 10.2% 6.4 5.8 2.3 $8.1% 3.4 3.2 1.8 4.606.971.7 $24.7% 159.0 796.585.6% 11.8 288.1 3.0 9.9 651.8 7.055 $20.2x 3. except per share data) Income Statement Revenues Merchandising & Processing Consumer Products Plantation & Palm Oil Mills Others Total Revenues Cost of Sales Gross Profit EBIT EBITDA Profit Before Taxes Net Income Earnings per Share Dividend per Share Balance Sheet Assets Cash & Bank balances Total Current Assets Biological Assets Property.729.2 1.0% 14. 73x 4.5 11.84x 0.14 1.44x 2.8x 19.02x 4.56x 2.6 $4.41x 2.85 6.1x 17.3x 18.5x 13.6x 15.79x 1.6x 7.11 0.0x 12.2x 11.55x 1.1x 10.55 0.80x 1.75x 2.A.49x 2.8x 15.08 1.2x 10.59 0.3 10.16x 1.7x 17.92x 6. N.83x 2.A.4x 14.0x 17.26 0.35x 0.A.1% 1.28x $16.2x 19.677 428.20x 0.8x 19.A.3x 11.4x 25.9 1.4x 8.6% 94.4 699.8x 10.6x 13.23 1.9x N.0x 9.3x 14.9x 14.890.67 5.875.83x 1. 23.2% 1.70x 4.40x 3.1x 11.92x 2.42 0.8x 7.7x 19.68 0.0x 8.9x N.8 $0.32x 4.2x 11.41x 2.4x 14.3x 13.64x 2.A.4x N.1x 18.6x 19.12x 0.5x 6.7 $1.95x 1.5 520.Public Comparables Company Information (All figures in millions.1x 32.3x 6.000 $16.0x 9.16x 4.2x 24.1x 20.86x 4. N.9x 15.3x 6.38 1.A.18 1.70x 1.3x N.7x 5.757.3x 8.2x 11.6x 23.37 0.68 $3.65 0.83x 2. 13.5) 167. 7.1 259.38 0.9x 16. 10.30x 4.2x 19.A.8 5.16x 4.0x 9.01x 2.1x 8.8x 16.3x 12.454.A.36 1.7x 0.6x 17.61x 2.783 1.86x 2.92x 1.87x 0.7x 6.0x 8.5x N.4x 18.2x 10.52x 1.5x 14.3x 14.2x 17.4x 8.93x 1.79x 1.A.9 $37. Confidential 47 of 48 .5x 15.5x 11.8x 12.4x 21.80x 3.0 194.86x 2.1x 5.1x 13.7x 6.20 1.11 $0.66x 0. N.51x 0.5% 85. $5.1x 17.98x 1.6x 16.854.547.364.358.48 97.6x 24.6x 11.51 1.7 340.60x 5.1x 2.49 0.71x 2.79x 1.56 1.5x 16.32x 2.5 254.49 0.5x 9.1x 13.95x 0.8x 7.06x 0.84x 2.690.5x 10.4 $0.67x 1.8 486.74 0.51x 2.8x 10.2 273.4 240.02 6.86 0.34 0.98 0.14x 2.297. 5.6x 9.21x 0.8x 16.28x 3.6 165.02 93.8x N.93x 3.8 (20. 6.2% 69.7x 12.2x 7.52 $681.1x 8.4x 7. 5.4x 12.1% 93. 1.314.2 387.3x 10.0x 10. 14.71x 4.23x 4.36x 2.06 0.87x 0.A.06x 2.61 0.05 2.4x 16. N.0 4.0x 32.06x 2.3x 16.16x 1.1x 16.6x 24.79x 1.8x 18.7 1.8 $1.9x 7.6x 14.A.8x 12.A.06x 0.8x 11.2x 9.A.7x 20.59x 6.27x 1.69 $1.A.06x 2.4x 8.5x 17.19x 1.A.4% 89.2x 7.1x 11. .7 917.1x 25.0 556.64x 5. 2009 | Ticker – WIL Public comparable trading analysis Wilmar International Ltd.16x 1.7x 12.2 147.9x 12.3x 6.4x 10.79x 1.87x 2.2x 11.4x 19.2x 17.8x 7.7 1.8x 19.3x 9.2x 11.3% 95.4 489.09 0.0 (5.29 0.10 89.5x 16.1x 11.33x 2.6x 23.8x 17.95x 1.53x 4.2x 22.91x 2.54x 0.1x 8.067.8x 16. N.8 4.65x 2.3x 14.9x 8.62x 2.25 0.4% 1.97x 3.73 1.41 1.464 6.10 1.5 10.12x 1.8 Low Mean Median High Singaporean Comparables Golden Agri-Resources Ltd $0.8x 15.745 1.4x 18.23x 3.2x 7.4x 9.28 12.8x 7.A.4x 18.06x 2.5 5.7x 19.87x 0.9x 8.07 ($122.91x 2.38 0.A.9x 6.31 0.1x 10.5x 23.4x 7.573 1.58 0.A.66x 2.2x 19. 1.1) 560.8x 14.A.3x 7.71x 2.1 179.155.7x 23.787.6x 12.39 $530.7x 10. 6.8x 10.5x 13.16 0.84 0.58x 3.34 $0.3x 23.60x 3.3x 14. N.6x N.153 311.1x 14.3x 16.4x 5.28x 4.63 0.39 1.95x 1.62 $2.343 800.2x 8.4% 98.1x 17.27 0.425 280.000 529.6x 18.1% 79.23 0.67 0.3x 19.5x 18.1x 11.2x 11.4x 10.16x Nov-19-2009 High Low % of 52 Week High Beta Diluted Market Net Debt Enterprise Value (1) Enterprise Value (1) / Sales LTM CY 2009E CY 2010E Enterprise Value (1) / EBITDA LTM CY 2009E CY 2010E Enterprise Value (1) / EBIT LTM CY 2009E CY 2010E LTM P/E CY 2009E CY 2010E P/B LTM Shares(mn) Capitalization BVPS (1) Enterprise Value = Market Value of Equity + Short-term Debt + Long-term Debt +Minority Interest + Preferred Equity . 14.7% 1.9x 7.5x 15.87 0. 12.9x 18.A.505 318. N.806 $34.2x 11.6x 7.6% 96.7x 10.918.9x 8. except per share data) Stock Price 52-Week Company Malaysian Comparables Sime Darby Bhd IOI Corp.000 3.0x 24.48 0.5x 16.9x 14.4x 9. 25.47 0.9x 9.4 1.64 4.Cash and Equivalents.2x N.53x 4. N.9x 5.91x 5.3x 8.2x 10.4x 18.8x 16.1x 11.72x N.4x 10.1x N. N.4x 12.682.0x 8.74 0.787.83 2.8x 10.069.4x 14.7x 8.A.67 1. N.10 0.99 0.33x 2.9x 12.3x 15.80x 2.8x 16.5) (10.6x 20.71 0.0x 7.79x 2.009.69x 1.273.A.A.0 1.7x 12.A.138.0x 6.8x 32.1x N.06x 2.1x 9.19x 3.8x 6.144.3 173.5x 12.7 321.63 103.4 Low Mean Median High Low Mean Median High Wilmar International Ltd.574.6x N.2x 10.6x 10.997 $3.79x 1.15x N. N.9x 12.2x 8.98x 3.7 468.9x 14.06 $1.37 $0.2x 8.3x 12.A.0x 12.5x 11.A.0x 13.6x 13.248.2x 9.183 1.2x 11.7x 8.33x 14.49x N.8x 9.4x 12.7x 10.Equity Report | November 19.0x 12.7x N.4x 12.6% 76.8% 93. 8.53 0.5x 10.1x 11. N.670 801.0) Low Mean Median High Indonesian Comparables Astra Agro Lestari Tbk PT Indofood Agri Resources Ltd PP London Sumatra Indonesia Tbk PT Sampoerna Agro Tbk PT Bakrie Sumatera Plantations Tbk PT $2.2% 90.10x $3.85 0.95x 1.64 0.74 1.4% 86.9 10.41 1.4x 10. 10. Bhd Kuala Lumpur Kepong (KLK) Bhd Kulim (Malaysia) Bhd IJM Plantations Bhd Hap Seng Plantations Holdings Bhd Tradewinds Plantation Bhd Kwantas Corp Bhd Sarawak Oil Palms Bhd Sarawak Plantation Bhd $2.067.A.0x 9.447.87x 0.92x 4.2x 11.7x 10.9x 16.A.28x 1. 9.1x N.87x 0.6 546.2x 19.3 600.21x 1. 8.1x 10.28 0.66x 1.9x 12.22 $5.6x 14.5x N.8x 7.19 0.0 594.680 $4.2x 12.A.0x N.0x 11.0x 8.79x 0.4x 13.A.3 0.6x 10.2x 10.93 0.88x 2.5 1.75 2.A.3x 9.9x 8.6x 11.1x 10.6x 10.08 $2.13x 0.9x 17.052.4x 6.19x 3.8 2. N.40x 4.0x 13.7x 10.9x 10.6x 27.5x 15.92x 1.60x 2.48 3.7x N.A.2x 14.0x 16.2x 10.4x 11. 6.2x 11.4x 25.9x 8. 7.33x 1.16x 3.A.146.3x 16.12x 4.62 1.9x 14.7x N.15x 14. Through our team of highly trained associates. and are only correct as of the stated date of their issue. TresVista makes every effort to use reliable. financial situations or needs and is not intended as a recommendation of particular securities. values. Before acting on any recommendation in this material. analyzing prospective investments. analytics. debt lenders. price or income of or from that investment to the investor. With the exception of information regarding TresVista. TresVista is not responsible for any errors or omissions or for results obtained from the use of this information. is expected to outperform the broad market benchmark and we recommend that investors buy the stock. Where an investment is described as being likely to yield income. Facts and views presented in this report have not been reviewed by. accuracy or adequacy and it should not be relied upon as such. We have no obligation to tell you when opinions or information in this report change. is expected to outperform the broad market benchmark by a wide margin and we highly recommend that investors buy the stock. The information contained in this report does not constitute advice on the tax consequences of making any particular investment decision. but we make no representation that it is accurate or complete. 2009 | Ticker – WIL Disclosure appendix Stock Rating Key: 5-STARS (Strong Buy): Total shareholder return. other professionals in TresVista. and other customized services. Ltd. seek professional advice.Equity Report | November 19. our clients are able to increase and manage their operational capacity in a cost-effective manner. or conducting due-diligence on a cross-border acquisition. and other financial services institutions. Where an investment or security is denominated in a different currency to the investor's currency of reference. Any opinions expressed herein are given in good faith. be it exploring an arbitrage opportunity. 1-STAR (Strong Sell): Total shareholder return is expected to underperform the broad market benchmark by a wide margin and the stock is anticipated to falling in price on an absolute basis. 3-STARS (Hold): Total return is expected to be in line with the overall expected market return in the short and long term and we do not recommend a Buy or Sell. TresVista partners with financial institutions globally to enable them to rise above the competition in today’s crowded marketplace. comprehensive information. About TresVista Financial Services: TresVista Financial Services Pvt. TresVista’s role is to be decided upon by the clients’ needs and the tasks at hand. 4-STARS (Buy): Total shareholder return. 2-STARS (Sell): Total shareholder return is expected to underperform the broad market benchmark and the stock is not anticipated to show a gain. financial instruments or strategies to you. please note that the amount of income that the investor will receive from such an investment may fluctuate. Prices. and may not reflect information known to. you should consider whether it is suitable for your particular circumstances and. if necessary. private equity firms. Confidential 48 of 48 . but TresVista does not warrant its completeness. are subject to change without notice. This material does not take into account your particular investment objectives. hedge funds. Past performance is not necessarily indicative of future results. Other important disclosures: This material is based upon information that we consider to be reliable. reports prepared by TresVista personnel are based on public information. Our clientele include investment banks. M&A advisory. changes in rates of exchange may have an adverse effect on the value. is a Mumbai-based firm that provides research. or income from any securities or investments mentioned in this report may fall against the interests of the investor and the investor may get back less than the amount invested. TresVista’s flexibility is instrumental to its goal of helping clients reach higher heights.