Wilmar International

[SLC81]

While it is natural for Wilmar put some retained profit into property investment (Wilmar's role will be primary to use their business network in China to "source" for properties at 2,3-tier china cities and provide part of the funding. Property development expertise will be provided by its partners in the joint ventures).

It seems to suggest to the boarder audience that Wilmar may:

1) Do not find better investment for growing the Agriculture business than property investment in red-hot China property market at the time when there are signs of "bubbles" even at 2 and 3-tier cities.

2) To "diversify" and hence the "Loss of focus"

Whether it is a bad decision now or very good investment in the longer term, people will now have to consider this new reality and re-valuate Wilmar not entirely on its superior agriculture business model which has given them better valuation.

The spin-off of Golden Agriculture (Palm oil) and BundCenter (China Property) from Asia Food Properties (AFP) is good example on how AFP has derived better value for its share holders.

So eventually, Wilmar will need to spin off the property and Agriculture business but in the short term i think Wilmar share price will suffer

[freedom]

do you believe in property value in sub-urbans area of Singapore?

if not, you should not buy into the idea of investment into 2nd or 3rd tier cities in China.

when property crashes, the 2nd and 3rd tier cities crash faster than the top city like Shanghai and Beijing.

when property recovers, the 2nd and 3rd tier cities recover the slowest or never recover.

the demand of 2nd and 3rd tier cities is more about speculation. the local population normally can't sustain the high property price.

[SLC81]

do you believe in property value in sub-urbans area of Singapore?

if not, you should not buy into the idea of investment into 2nd or 3rd tier cities in China.

Hi Freedom, Your deductive reasoning is not sound as there are no analogies between China 2,3-Tier as compared to 1-Tier and Singapore sub-urban as compared to prime areas in the context of property investment for development.

Pls refer to the report below from Jone Lang Lasalle "China 2020 the Landscape of Change"

http://www.joneslanglasalle.com.hk/HongK...a_2020.pdf

Beside Wilmar and its partners, other seasoned property developers such as Capitaland and Keppland also announced some 2,3-tier site acquisition and development very recently and some executives went on to say, They will focus entirely on the 2,3-tier cities in China.

It is to say, it is the broad consensus that China 2,3-tier is better than 1-tier for property developers.

Our views which are limited to individual mindset are from quite different perspective from those of property developers.

As with all of us posted here, i believe there will be a sort of property "crash" in China, but the questions are when and how much impact (or anything at all to Wilmar). Jim Chanos famously declared the crash in 2010 and now he said it will in 2011. We will know when it happens.

Land bank acquisition still need to be done when opportunities arise and not quite come in at the best timing, Property developer can chose when is good time to develop and release to market.

[edragon]

Land bank acquisition still need to be done when opportunities arise and not quite come in at the best timing, Property developer can chose when is good time to develop and release to market.

That priviledge has just been revoked; yesterday's news as follows:-

Ministry of Land and Resources banned enterprises holding idle lands from
bidding new lands; Sinopec (386.HK) included on the list. Ministry of Land and
Resources announced on its website that it would ban some enterprises holding
idle lands from bidding new lands. Sinopec is included on the list. The Ministry
announced the details of 26 pieces of lands in the country which were idle due to
different reasons. Idle fees will be levied for lands left unused for more than 1 year
but less than 2 years. Lands idle for more than 2 years will be taken back.
Developers on the list and their controlling shareholders will be barred from
bidding new lands until the idle lands have been handled properly. The Ministry
will update the list on the website so as to release the developers for land bidding
activities.

[mrEngineer]

I believe that the China property to crash due to the withdrawal of hot money to lock profits. Higher saving rate do not matter much in the environment of extreme high inflation. IMO, I would tend to believe that high saving rate may exaggerate the loss of confidence crisis as human flight to safety mindset

Thanks for the news edragon. What baffles me is that idle fees are levied for 26 pieces of land. Can you imagine the sheer size of China and only 26 pieces of land are being left unused after being purchased? The news just mean firms whom are holding are not allowed to bid for new land but new companies can continue to purchase and hold.

[freedom]

do you believe in property value in sub-urbans area of Singapore?

if not, you should not buy into the idea of investment into 2nd or 3rd tier cities in China.

Hi Freedom, Your deductive reasoning is not sound as there are no analogies between China 2,3-Tier as compared to 1-Tier and Singapore sub-urban as compared to prime areas in the context of property investment for development.

Pls refer to the report below from Jone Lang Lasalle "China 2020 the Landscape of Change"

http://www.joneslanglasalle.com.hk/HongK...a_2020.pdf

Beside Wilmar and its partners, other seasoned property developers such as Capitaland and Keppland also announced some 2,3-tier site acquisition and development very recently and some executives went on to say, They will focus entirely on the 2,3-tier cities in China.

It is to say, it is the broad consensus that China 2,3-tier is better than 1-tier for property developers.

Our views which are limited to individual mindset are from quite different perspective from those of property developers.

As with all of us posted here, i believe there will be a sort of property "crash" in China, but the questions are when and how much impact (or anything at all to Wilmar). Jim Chanos famously declared the crash in 2010 and now he said it will in 2011. We will know when it happens.

Land bank acquisition still need to be done when opportunities arise and not quite come in at the best timing, Property developer can chose when is good time to develop and release to market.

Do you know why property in Shanghai/Beijing can rise so high? It is not local population supporting the property price. Its huge job opportunity attracts a lot of people from all over the country.

Do you think a lot of people will move to 2nd-tier and 3rd-tier city to support its unrealistic property price? for what? There is not going to be a lot of jobs offered in 2nd-tier and 3rd-tier cities, especially if they are situated in the east. If in the west, maybe they will have better opportunity because that's the target to develop in the next 5 years for Chinese central government.

Sadly, Yingkou City, Wilmar invested into is in the east. and It relies the local government attracts high-pollution industrial players like An Steel which is destroying the once beautiful city. And most of these new players are building their own property for theirr employees.

2nd-tier and 3rd-tier cities are just like HDBs. the price of HDBs is supported by locals and PRs. If there is going to be fewer and fewer new PRs and new citizens and the supply will not decrease, you can expect HDB price will fall off the cliff. But not necessary for high-end private property which is like Beijing/Shanghai.

[SLC81]

hi Edragon, it is very interesting new.
hi Freedom, We are repeating our points and about out of topic, while I do not agree on the "Opportunities/profit for developer in 2,3-tier as compared to 1-tier", i agree with you on (1) important of location in property investment (as you implied) and (2) the coming crash of China property market, let move on the how these are going to impact Wilmar as China is the most important market for Wilmar.

I post here links for two contradicting views in 2010 about the China.

(1) Jim Chanos, predicted that China real estate and stock market.

http://www.nytimes.com/2010/01/08/busine...hanos.html

http://www.youtube.com/watch?v=POGX8_UDhh4

(2) Shaun Rein of China Market Research Group
http://www.forbes.com/2010/01/11/china-b...-rein.html

[Musicwhiz]

Business Times - 05 Jan 2011

Wilmar share price comes under pressure

JP Morgan slashes target price; property foray cited

By FELDA CHAY

PALM oil giant Wilmar International has been hit by a bad spell of late. JPMorgan has slashed its target price for the stock to $4.60 from $7.20 and brought down its stock call to 'underweight' from 'overweight'.

It cited a string of reasons for the downgrade, such as regulatory overhang and competition in China, overly optimistic consensus earnings estimates, and its foray into property, which is unrelated to its core business.

Wilmar's share price has fallen off considerably since it announced its third quarter results last November, which showed a sharp drop in net profit.

It has been plagued by concerns over its business outlook - what with the Chinese government's move to curb price increases for cooking oil, which Wilmar manufactures for the China market, and the company's recent announcements that it is venturing into the Chinese property market.

Yesterday, Wilmar's shares closed 16 cents lower at $5.50 - its lowest since July 2009. Its shares have fallen 20 per cent since its Q3 results were released.

Commenting on Wilmar's decision to move into the Chinese property market, JPMorgan said that it could mean more capital being reallocated to property investments, as opposed to being re-invested in its core agri-commodities business in future.

'We believe this may lead to a lowering of the price to earnings ratio that investors are willing to accord the stock,' said JPMorgan.

JPMorgan has reduced its earnings estimates on Wilmar for its fiscal year 2011 to US$1.6 billion - which is now below consensus predictions.

Its newest target price is based on 14 times Wilmar's 2011 price to earnings (PE) ratio, which JPMorgan said is at a 10 per cent premium to the firm's global supply chain peers due to its large scale operation.

It added that the target PE ratio is at a 15 per cent discount to Wilmar's Malaysian palm oil peers, which in part receive valuation support from domestic funds and have a larger exposure to plantations.

'We believe consensus estimate is still too optimistic,' said JPMorgan.

Currently, the consensus forecast for FY2011 is for Wilmar to reap a net profit of US$1.9 billion, which JPMorgan noted works out to an average of about US$475 million per quarter.

'The last time we witnessed such record earnings was in the third quarter of FY2009, when Wilmar delivered US$486 million of core net profit,' said JPMorgan.

It believes this is unlikely to happen as it expects Wilmar to see lower margins in its oilseeds crushing business on lower trading profits accretion. It also believes Wilmar's consumer products division will face increased competition.

'Against an environment of rising competition, it is unlikely for consumer products margin to return to the high level seen previously, especially with aggressive advertising and promotion to push branded cooking oil market share in markets like Indonesia as well as rice and flour packs in China,' said JPMorgan.

And while Wilmar has completed its A$1.8 billion (S$2.3 billion) acquisition of Australian raw sugar exporter Sucrogen - which recorded A$79 million in net profit for the year ended March 2010 - Wilmar may not be able to reap the fruits of the completed deal as it could be 'negatively impacted' by a higher interest expense, said JPMorgan.

A Bloomberg article in August quoted people familiar with the matter as saying that Wilmar approached banks for about US$1.1 billion of loans to acquire Sucrogen, and will pay an all-in fee averaging about 100 basis points more than the London interbank offered rate.

Then there are the regulatory curbs that China has imposed on four cooking oil manufacturers, including Wilmar. Wilmar has been told not to raise prices before a parliamentary congress in March this year as the country battles to slow food inflation. It is not known when the ruling will be lifted.

Wilmar may also be affected by rising crude palm oil prices, which could negatively impact its refining margins as it may not be able to pass on the higher costs completely.

[Musicwhiz]

Business Times - 06 Jan 2011

Wilmar finalises China property JV

WILMAR International has finalised a joint venture to develop six sites in China. This comes after a separate successful joint bid with Kerry Properties and Shangri-La Asia for the sites in Laobian District, Yingkou City, Liaoning Province, China, for 1.35 billion yuan (S$263 million).

Wilmar's wholly owned subsidiary, WCA Pte Ltd (WPL), has entered into a master joint venture (JV) agreement with Kerry Properties (China) Ltd (KPCL), a unit of Kerry Properties, and Shangri-La China Ltd (SACL), a subsidiary of Shangri-La Asia. Under this, they will establish one or more JV companies to undertake the development, operation, sale, leasing and property management of the project sites.

The shareholdings of WPL, KPCL and SACL in the JV will be 35 per cent, 40 per cent and 25 per cent respectively. WPL's investment is about 2.63 billion yuan, based on the maximum total project investment of 7.51 billion yuan. Funding for the JV will be from internal sources of funds and bank borrowings, said Wilmar. The investment is not expected to have a material impact on the group's financial position.

The master JV agreement and the establishment of the JV companies are conditional upon the necessary regulatory approvals, shareholder approvals and all necessary approvals from the relevant Chinese authorities.

If any one of the three parent companies of the JV parties is not successful in obtaining the requisite shareholders' approval (where required) by June 30, 2011 (or such other date as agreed), the remaining parties will acquire its interest in the JV in proportion to their respective interests as set out in the master agreement.

As of now, only KPL is required to seek shareholders' approval in respect of the transaction. In the event that KPL is unable to comply with this condition, the shareholdings of WPL and SACL in the JV will be adjusted to 58 per cent and 42 per cent respectively.

Wilmar shares rose six cents to $5.56 yesterday, recovering from recent weakness due to concerns that the property venture may dilute its focus on its core agriculture business.

[Nick]

It seems that Wilmar International held an analyst briefing today about their latest property revenue stream and their thoughts on 4Q 10 results in the agribusiness.

Here are some of the analyst views about Wilmar after attending the presentation -

BUY
OCBC - http://www.remisiers.org/cms_images/Wilm...10-OIR.pdf
DMG - http://www.remisiers.org/cms_images/rese...STXOSV.pdf

HOLD
CIMB - http://www.remisiers.org/cms_images/Wilmar-1001111.pdf
DBSV - http://www.remisiers.org/cms_images/rese...d_DBSV.pdf

(Not Vested)