Shares of Wilmar International (WLIL.SI), the world’s largest listed palm oil firm, fell as much as 2.4% on Wednesday after it said it will invest around 889.2 million yuan ($175 million) in property joint ventures in China.
At 9:11 a.m., Wilmar shares were down 2.2% at $5.79 on a volume of 3.6 million shares.
Wilmar said on Tuesday it had entered joint ventures with Kerry Properties and Shangri-La China to develop three sites in Yingkou City, China, for residential, commercial and hotel use, citing growing demand for such properties in lower tier cities.
However, DMG & Partners Research said the entry into the property market represents Wilmar’s first ever deviation from its core agribusiness.
“We fear this could mark the start of Wilmar’s loss of business focus and corporate discipline and do not think the venture will be well received by the market,” DMG said in a report.
But the brokerage maintained its “buy” call as it viewed Wilmar as inexpensive at 13.5 times 2011 earnings.
Phillip Securities separately has upgraded Wilmar to “buy” from “hold” and maintained its target price of $7.08.
Phillip said Wilmar’s share price has underperformed the broader market as the firm’s 2010 earnings are expected to be weaker due to a squeeze in its margins, as well as higher feedstock prices and recent price caps on consumer pack edible oils.
However, the brokerage said most of the negative developments have already been priced in and it did not expect price control to be long-drawn.
Wilmar International said it will invest US$27.5 million ($36.1 million) into joint ventures with UK-based PZ Cussons Plc to set up a palm oil refinery and food ingredients business in Nigeria.
Phillip said it viewed this collaboration positively because of Wilmar’s experience in the edible oil industry and Cussons’ extensive distribution network in Nigeria.
The brokerage added that palm oil accounts for 57% of Nigeria’s vegetable oil production and the country has plans to be self-sufficient in the edible oil sector.
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