I notice you have mentioned about wilmar couple of times(as a low cost producer, scalable biz, etc)
Their results however have been quite pathetic for a long while and dividend yield is also not too exciting.
Is it an appropriate time to buy into Wilmar or we should just simply wait till CPO prices start to recover?
Hi Mun Seng,
Before we invest in Wilmar (or any company), it is imperative that we run the company through a full analysis and whether it passes the criteria set in the Investment Quadrant. Have you done so? :)
Beyond that, even if a company passes the criteria, it is still ultimately your decision whether and when to invest in a stock or not.
In this example for Wilmar, once you’ve completed your analysis and based on what you know, would you prefer to invest now because you’re confident in the company and think it’s a great time to enter, or would you rather wait for a “confirmation” — when you see CPO prices starting to recover?
Hi Rusmin, thanks for your prompt reply.
I guess there is no right entry timing afterall. I doubt it is possible to get a company that has all the ingredients right for the four quadrants. If B,F,M are OK, likely mr market will give it a richer valuation and vice versa.
Also may be even the “best management” is not able to fight market forces if that sector is facing oversupply, etc.
Hi Mun Seng,
We’ve found companies that fulfil all four quadrants and made money out of it.
Keep searching. I’m sure you can find them too! Do let us know if you need any support (but don’t ask us “Which stock to buy ah?” as we are not allowed to recommend any stocks under MAS regulations) :P
Hi RusminFor commodities company like Wilmar, which valuation method will you use?
Owing to its integrated model, Wilmar generates consistent earnings across most divisions (except Oilseeds & Grains). So I will opt for an earnings valuation approach which lies on their future earning capability. But always bear in mind that valuation involves multiple perspectives and my approach may not be suitable for you :)
Can you elaborate more on the approach of valuating Wilmar’s future earning capability?
With CPO prices hitting below RM2000 now, its getting more difficult for Wilmar to post good results. This may be one reason why their share price has underperformed the general market.
Good observation, Mung Seng! Just to add one more point: most stocks fall, and opportunities arise, when news (macro and micro) are bad. From a report that I read early last year, almost 9 out of 10 analysts (who cover Wilmar) downgraded the stock causing Wilmar's share price took a massive drop from $6 to merely $3 a share now. Analysts got big muscles to evaporate billions of dollars, aren't they?
Yes, but i believe there will be an opportunity to get into Wilmar. Just beware of the falling knife or value trap now. I just do not see a catalyst for Wilmar at this moment.
Earnings power, the ability to earn more money in the future, lies on how a company position itself in the market amidst strong competition and challenges. For Wilmar’s palm oil business, do you foresee their vertical integration helps to mitigate the fluctuation of CPO prices? Simply said, when CPO prices are down, this will definitely hurt Wilmar’s upstream’s margin coming from plantation & milling and, however, the downstream division (ie cooking oil) would benefit from lower cost of goods.
If you think so, then valuation can be projected into the future using historical earnings as your first guide. You could find out Wilmar palm oil biz division ‘earnings’ for the past five years and value it according to the your own comfort level of valuation as if you were to privative this division.