Why Wilmar's gains from 15% stake sell-off isn't too impressive

It juiced US$24m from the sale.

According to Phillip Securities, Wilmar announced that it has conditionally agreed to sell all of its 15% stake in Fortune Gas Investment Holdings (FGIH) to China Gas. China Gas, one of the largest city-gas distributors in China, is listed on the Hong Kong Stock Exchange, while FGIH is the Chinese natural gas operations of, London-listed petroleum and gas distributor, Fortune Oil.

Here's more from Phillip Securities:

The aggregate consideration for the sale is US$60mn, which is subject to approval by shareholders of Fortune Oil and China Gas, as well as Beijing's clearance after anti-monopoly vetting.

The shares were purchased at US$36mn in 2008 and its sale resulted in a realized gain of US$24mn. This equates to a return of 13.6% p.a., which is a decent return. FGIH’s PBT was US$18mn in FY11, and based on China Gas’ acquisition price of US$400mn for the entire FGIH stake, the deal is valued at 22x to PBT.

We view this as a decent valuation. That said, the financial impact on a full year basis and over a large share base of 6.4bn shares is not substantial.

Though the sale resulted in a gain, the impact is not substantial (< 3% of our FY12E earnings estimate), hence we are not making adjustments to our earnings forecasts.

Albeit CPO prices and China crushing margins may still remain weak in the near-term, we are positive on the company’s long-term outlook. In fact, we are starting to see quarterly recovery from the recent 3Q12 results, and we expect sequential improvement with a stronger 2H12 driving recovery in both earnings and share price.

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