Olam International Limited

OCBC on 29 Aug 2012

Olam International Limited (Olam) saw FY12 revenue rising 8.2% to S$17.1b, but reported net profit fell 13.7% to S$370.9m, which missed our forecast. It also declared a lower dividend of S$0.04 (versus S$0.05 in FY11). Going forward, Olam expects to see some uncertainty and volatility in the near term, but remains positive on the Agri-industry prospects. In light of the still muted outlook, we pare our estimates for FY13 revenue by 9.8% and core earnings by 6.2%. Hence even as we roll forward our unchanged 12.5x peg to FY13F EPS (from blended FY12/FY13 previously), our fair value drops to S$1.80. Maintain HOLD and would only consider accumulating around S$1.60 or better.

Uninspiring FY12 showing
Olam International Limited (Olam) saw FY12 revenue coming in around S$17.1b, up 8.2%, but was around 9.2% shy of our forecast; this despite a 26.3% jump in sales volume to 10.7m MT. While Olam reported net profit fell 13.7% to S$370.9m, it noted that operational net profit (excluding one-off items and non-operating biological asset gains) was down 4.6% at S$355.5m. However, our estimate of S$356.1m did not include any biological asset gains. Olam declared a final dividend of S$0.04/share, down from S$0.05 a year ago.

Cautious outlook for FY13
While Olam continues to view its Food business as largely resilient to the global economic slowdown, it notes that near-term market and industry dynamics could have a drag on margins and profits. Olam is less sanguine about its Industrial segment where it is likely to see slower recovery due to continued customer pessimism and slowing growth in the emerging markets like China and India.

Focused execution and extracting value
Nevertheless, Olam stresses that it is well diversified in its sourcing and is well positioned to respond to potential short-term volatility in specific segments; it adds that it has a strong balance sheet in place to handle potential macro economic shocks and will not need to tap the equity market to support both current and future investments. Last but not least, its priority is now on focused execution and extracting full value for investments already made or committed.

Maintain HOLD with new S$1.80 fair value
In light of the still muted outlook, we pare our estimates for FY13 revenue by 9.8% and core earnings by 6.0%. Hence even as we roll forward our unchanged 12.5x peg to FY13F EPS (from blended FY12/FY13 previously), our fair value drops to S$1.80. Maintain HOLD and would only consider accumulating around S$1.60 or better.