Olam International Limited (Olam) posted 1QFY14 revenue of S$4321.0m, down 8% YoY, reflecting lower commodity prices and also relatively flat sales volume. Nevertheless, EBITDA improved 18% to S$243.0m, aided by margin expansion from upstream and midstream initiatives and also organic growth from core supply chain activities. As such, PATMI inched up 6% to S$45.6m; estimated core earnings (excluding bio-asset gains) climbed 25% to S$42.7m. We judge both revenue and core PATMI to be in line as these met 19% and 12% of our full-year estimates, respectively, with its first quarter being seasonally slower. As we are keeping our FY estimates unchanged, our fair value remains at S$1.45, still based on 10x FY14F EPS. Given the limited upside, we maintain our HOLD rating.
1QFY14 results mostly in line
Olam International Limited (Olam) posted 1QFY14 revenue of S$4321.0m, down 8% YoY, reflecting lower commodity prices and also relatively flat sales volume. Nevertheless, EBITDA improved 18% to S$243.0m, aided by margin expansion from upstream and midstream initiatives and also organic growth from core supply chain activities. As such, PATMI inched up 6% to S$45.6m; estimated core earnings (excluding bio-asset gains) climbed 25% to S$42.7m. We judge both revenue and core PATMI to be in line as these met 19% and 12% of our full-year estimates, respectively, with its first quarter being seasonally slower.
New measurement of profitability
Business-wise, Olam noted that most segments "performed well despite the challenging industry environment", and the trajectory of the EBITDA and PATMI growth in 1QFY14 gives Olam further confidence that it will meet its plan targets for FY14. However, Olam has recalibrated its measure of profitability from GC (Gross Contribution/MT) and NC (Net Contribution/MT) to EBITDA. Hence, we believe that the market may need more time to digest the new information and track Olam's performance.
More sale and leaseback planned
Meanwhile, Olam plans to execute more sale and leaseback of upstream assets as part of its strategy to generate incremental cashflow, help maintain profitability while enhancing the returns on invested capital. Recall that it had recently announced the sale and leaseback of its almond plantation assets in Australia for A$200m. Based on its continued efforts to drive higher operating cash-flow generation from existing businesses, unlocking value from past investments, reduced pace of fixed capital investments, Olam believes it is on track to generate positive FCFF for FY14.
Maintain HOLD and S$1.45 fair value
As results were largely in line, we opt to keep our estimates unchanged. This also means that our fair value remains at S$1.45, still based on 10x FY14F EPS. Given the limited upside, we maintain our HOLD rating.
Olam International Limited (Olam) posted 1QFY14 revenue of S$4321.0m, down 8% YoY, reflecting lower commodity prices and also relatively flat sales volume. Nevertheless, EBITDA improved 18% to S$243.0m, aided by margin expansion from upstream and midstream initiatives and also organic growth from core supply chain activities. As such, PATMI inched up 6% to S$45.6m; estimated core earnings (excluding bio-asset gains) climbed 25% to S$42.7m. We judge both revenue and core PATMI to be in line as these met 19% and 12% of our full-year estimates, respectively, with its first quarter being seasonally slower.
New measurement of profitability
Business-wise, Olam noted that most segments "performed well despite the challenging industry environment", and the trajectory of the EBITDA and PATMI growth in 1QFY14 gives Olam further confidence that it will meet its plan targets for FY14. However, Olam has recalibrated its measure of profitability from GC (Gross Contribution/MT) and NC (Net Contribution/MT) to EBITDA. Hence, we believe that the market may need more time to digest the new information and track Olam's performance.
More sale and leaseback planned
Meanwhile, Olam plans to execute more sale and leaseback of upstream assets as part of its strategy to generate incremental cashflow, help maintain profitability while enhancing the returns on invested capital. Recall that it had recently announced the sale and leaseback of its almond plantation assets in Australia for A$200m. Based on its continued efforts to drive higher operating cash-flow generation from existing businesses, unlocking value from past investments, reduced pace of fixed capital investments, Olam believes it is on track to generate positive FCFF for FY14.
Maintain HOLD and S$1.45 fair value
As results were largely in line, we opt to keep our estimates unchanged. This also means that our fair value remains at S$1.45, still based on 10x FY14F EPS. Given the limited upside, we maintain our HOLD rating.
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