CGS International (CGSI) analyst Jacquelyn Yow has downgraded Wilmar International from "hold" to "reduce," slashing its target price from S3.15 to S2.70, citing mounting regulatory uncertainties in Indonesia. The July 18 report highlights ongoing investigations into the agribusiness giant's palm oil and rice operations, including potential land confiscations and corruption probes.

Yow noted that while Indonesia's rice business contributes minimally to Wilmar's operating profit, recent developments have created significant operational uncertainty. These include a police investigation into alleged rice mislabeling practices and a S929 million security deposit tied to a 2022 palm oil export permit case.The analyst estimates these issues could impact nearly 2729 million.

The downgrade also reflects broader challenges, including volatile commodity prices due to U.S. tariffs and geopolitical tensions. CGSI has consequently reduced Wilmar's FY2025-FY2027 core net profit forecasts by 0.4-12.5%, factoring in weaker soybean crushing margins and compressed palm oil refining profitability following Indonesia's export levy revisions.

For Q2 2025, Yow anticipates net profit to decline to US260−270 million, pressured by softer feed and industrial segment margins. China's sluggish consumer demand continues to weigh on food product sales, exacerbated by high promotional costs in the consumer goods segment.

On a strategic note, the report addresses Wilmar's planned 11-20% stake increase in India's AWL Agri Business (formerly Adani Wilmar) at ₹275/share – a 10% discount to the capped price in their 2024 option agreement. While this acquisition would boost Wilmar's effective ownership to 55-64% and enable full consolidation, Yow remains neutral given AWL's premium valuation (29x FY2025 P/E) against modest growth prospects in India's currently soft consumer staples market.

The analyst projects full consolidation could eventually add ~10% to Wilmar's net profit based on AWL's FY2025 earnings, but sees no immediate financial impact as deal terms remain under negotiation. The downgrade ultimately reflects CGSI's cautious stance on Wilmar's near-term operational headwinds outweighing its long-term strategic positioning.