Seriously, Wilmar will still get the oil price freeze jitters

Even if it freaks out in buying its own 7.4m shares back.

According to OCBC, Wilmar International Limited (WIL) has started to buy back its own shares (has mandate to buy up to 10% of its existing shares). The company on 13 Sep bought back 7.4m shares at S$3 each, or 0.115% of existing shares, for S$22.2m.

Here's more from OCBC:

And also buoyed by the recent QE3 initiatives announced by the US Federal Reserve, the share price has staged a strong rebound, climbing as much as 10% over the past two sessions.

However, we are still not convinced that there is a structural improvement in WIL’s near-term fundamentals. First, crush margins in China for its Oilseeds business continue to remain sub-optimal, as the industry is still flushed with excess crushing capacity. Management also previously said that it only expects the surplus crushing capacity to be fully absorbed in 2014.

And we think this is further exacerbated by the still-volatile movements in soy and other raw material prices.

Secondly, we think that its cooking oil products could continue to face price freeze even as China acts to further stimulate the domestic economy, given growing unemployment and inflationary concerns. According to media reports, the Chinese
government continues to monitor rising soymeal and cooking oil prices closely; even meeting with some major crushers, including WIL and Cofco Group, to express concerns about soymeal prices and “excessive speculation” on them.

As such, cooking oil  makers like WIL could face margin compression due to rising input prices.

Nevertheless, we note that the market is adopting a more risk-on approach on the back of QE3. Hence we raise our valuation peg from 12.5x to 13.5x, which sees our fair value edging up from S$2.90 to S$3.06 (still based on blended FY12/13F EPS).