• BUY maintained with SGD4.65 TP, 24% upside. Wilmar’s sustainability briefing touched on its efforts to map out its Scope 3 emissions, as well as steps being taken to achieve its net zero target and updates on the EU Deforestation Regulation. We believe Wilmar’s ESG efforts are commendable and it remains our top ESG scorer – with a 3.1 score – for the stocks under our coverage. Valuations are also inexpensive when compared against its China-listed peers.

• Strengthening climate commitment. Wilmar committed in Nov 2021 to have net-zero emissions by 2050 and to align with the Palm Oil Sectoral Roadmap launched at the 2022 United Nations Climate Change Conference (COP27). To that end, Wilmar has signed up with Science Based Target initiative (SBTi) to set its emission reduction targets as well as to demonstrate progress of its commitment. The company is now in the midst of developing time-bound strategies to achieve near-term net-zero emission reduction targets by end-2024. As part of the preparation for target setting assessment, its Scope 1 and Scope 2 baselines were externally verified and audited by EY.

• Scope 3 GHG emissions mapped out. Wilmar has successfully completed the mapping of its Scope 3 GHG emissions. Scope 3 emissions of the group for its baseline year, ie FY20 is 155.8m tonnes of CO2e, which accounted for 91% of its total emissions. The Scope 3 emissions mainly came from purchased goods and services (90% of its total Scope 3 emissions). As the mapping of Scope 3 emissions is completed, Wilmar’s next action is to establish plans to address and reduce the emissions.

• Biodiversity and conservation work. More than 32,000 ha of Wilmar’s oil palm plantations are regarded as conservation areas. On top of that, as part of its riparian rehabilitation programme, the company planted more than 30,000 trees beyond its Malaysian operation's designated conservation and riparian areas.

• EU Deforestation Regulation updates. While Wilmar welcomes the EU deforestation policy, it believes that some of the challenges arising from the implementation of the policy need to be worked together with the authorities. The challenges include the definition of deforestation, current certification standards and best practices not being recognised, and the increased amount of administrative work. Regardless, as far as the EU deforestation policy is concerned, Wilmar is confident of being deforestation-free throughout its supply chain.

• Unchanged TP and earnings. Our TP includes a 2% ESG premium, based on a 3.1 ESG score. We make no changes to our earnings. We believe the stock remains undervalued – trading at 11x 2023F P/E vs China-listed peers’ 20-40x, while its combined stake in Yihai-Kerry and Adani Wilmar is almost double that of its own market capitalisation.

Source: RHB Research - 25 Jul 2023