As economies around the world go through virtual shutdown due to the pandemic, many vulnerable sectors have also suffered untold financial suffering.
Yet some companies have remained resilient despite this protracted crisis.
Companies such as Sheng Siong Group Ltd provide essential services such as basic necessities and are therefore allowed to continue operating without interruption.
Some businesses such as Facebook, Zoom Video, and iFAST Corporation Ltd (SGX: AIY) have even thrived as more people rush to go online and businesses turn to using digital resources to operate. and communicate.
Some blue chip companies have also performed well during this period, with Singapore Exchange Limited reporting record revenues for its most recent fiscal year 2020.
Wilmar International Limited, a stock making up the Straits Times Index, is also benefiting from strong tailwinds and performing well.
Is the commodities giant considered a great investment in these troubled times?
1. A raw materials juggernaut
Wilmar was founded in 1991 and is a leading food group in Asia.
The group has a wide range of activities such as oil palm cultivation, sugar milling, consumer goods manufacturing, and flour and flour milling.
Wilmar has over 500 manufacturing plants and a distribution network spanning over 50 countries and regions.
It also employs a multinational workforce of around 90,000 people.
The group was listed on the stock exchange in August 2006 and with an initial market capitalization of just $ 2.4 billion.
Over the past 14 years, Wilmar’s market cap has grown more than 10-fold to $ 28.3 billion.
2. Strong demand for consumer goods
For the first half of 2020, Wilmar has published a solid set of results.
Revenue jumped 12% year-on-year to US $ 22.6 billion (S $ 31 billion) while core net profit jumped 49% year-on-year to US $ 636 million.
The group has seen demand improve across all of its divisions, with sales of consumer products increasing dramatically as people eat more at home when telecommuting.
While Wilmar manages food operations deemed essential during the pandemic, the group has also been allowed to operate without interruption.
Due to the strong financial performance, the commodities giant increased its interim dividend from $ 0.03 to $ 0.04.
CEO Kuok Khoon Hong remains optimistic about the group’s prospects, saying China, where Wilmar has the largest operations, has recovered earlier than other countries from the pandemic.
Wilmar also has many integrated complexes around the world that help ensure a continuous supply of products even during periods of containment.
3. Listing of the Chinese subsidiary
Wilmar also recently successfully completed the listing of its 99.99% owned Chinese subsidiary, Yihai Kerry Arawana Holdings Co., Ltd. (YKA).
YKA’s IPO price was set at RMB 25.70 per share, and the company was listed on the ChiNext Board of Directors of the Shenzhen Stock Exchange on October 15.
The group raised a total of 13.9 billion RMB (about S $ 2.82 billion) from this list.
The offering was extremely popular and was significantly oversubscribed. For offline investors, the IPO was 600 times oversubscribed while for online retail investors it was almost 1,750 times oversubscribed.
The YKA share price has doubled since its listing and is trading at around 52 RMB at the time of writing.
4. Cyclicality and volatility
Of course, no discussion is complete without pointing out the risks to the business.
Being in the commodities business, Wilmar naturally depends on commodity prices for a living.
These prices depend on the market and are beyond the control of the group.
Therefore, its results may fluctuate significantly due to the underlying volatility associated with movements in commodity prices.
There is also an element of cyclicality in the group’s operations.
As Wilmar deals with raw materials, a boom in any of the raw materials will attract competitors to increase production, thus increasing the overall supply.
As supply increases to match or even exceed demand, prices will begin to fall in accordance with the law of economics.
This cycle of peaks and troughs is inherent in the commodities industry, as there are low barriers to entry and any player can come in and start producing the same products that Wilmar makes.
Be smart: good, but not great
While the above attributes indicate a company with strong tailwinds and good growth, I must conclude that Wilmar is simply a good company rather than a great company.
The commodities giant may have the weight and the track record to show, but its core business is always subject to the vagaries of the commodities market.
Without being able to control its prices, the group’s activity may suffer sharp declines in turnover and profit characteristic of commodity-type activities.
This article first appeared in The smart investor. Disclaimer: Royston Yang owns shares in Facebook, Singapore Exchange Limited and iFAST Corporation Ltd.