Tuesday 26 May 2015

Olam

OCBC on 15 May 2015

Olam’s 1Q15 revenue slipped 11% YoY to S$4321.1m, on the back of lower sales volume (down 33.2% YoY) as it continues to restructure lower margin businesses as part of its strategic plan objectives. Reported net profit tumbled 92% YoY to S$31.3m; mainly due in part to an exceptional gain of S$294m in 1Q14 as well as an exceptional loss of S$97m (related to bond buyback) in 1Q15. Excluding these items, Olam said operational NPAT was actually up 26% YoY at S$128.5m. Olam reiterates that it remains focused on executing its strategic plan initiatives and optimizing its debt portfolio. Olam currently has a net gearing of 1.83x as of end Mar, versus its target of <2.0x; it also generated FCFF of S$120.2m in 1Q15, though still FCFE negative to the tune of S$57.4m. For now, we maintain HOLD with an unchanged S$2.30 fair value.

New start to FY15
Olam’s 1Q15 revenue slipped 11% YoY to S$4321.1m, on the back of lower sales volume (down 33.2% YoY) as it continues to restructure lower margin businesses as part of its strategic plan objectives. Reported net profit tumbled 92% YoY to S$31.3m, mainly due in part to an exceptional gain of S$294m in 1Q14 as well as an exceptional loss of S$97m (related to bond buyback) in 1Q15. Excluding these items, Olam said operational NPAT was actually up 26% YoY at S$128.5m. 

Edible Nuts did well in 1Q15; not so for Food Staples
By segments, top-performer Edible Nuts saw higher revenue growth of 13.2% YoY and EBITDA growth of 14.6%, aided by elevated prices of almonds, hazelnuts and pepper, despite a 17% dip in volume. Olam expects its almond business to continue its good performance, although it notes of a potential rise in cost in the coming quarters. On the other hand, Food Staples saw sharp YoY declines in volume of 42%, revenue of 38% and EBITDA of 34%; besides deconsolidation of the Grains business in Australia, the segment was also affected by the continued underperformance of Dairy farming operations in Uruguay and currency devaluation impact in Nigeria, Ghana and Mozambique. But on a whole, EBITDA margin has improved to 7.6% in 1Q15 from 5.8% in 4Q14 and 6.9% in 1Q14.

Strategic review still on track
Olam reiterates that it remains focused on executing its strategic plan initiatives and optimizing its debt portfolio. So far, it has completed 20 initiatives with a positive cashflow impact of S$966.1m; although it has recently embarked on the acquisition trail again, including the move to acquire the global cocoa business of Archer Daniels Midland (ADM) for US$1.3b. Olam currently has a net gearing of 1.83x as of end Mar, versus its target of <2.0x; it also generated FCFF of S$120.2m in 1Q15, though still FCFE negative to the tune of S$57.4m. 

Maintain HOLD with S$2.30 fair value
For now, we maintain HOLD with an unchanged S$2.30 fair value.

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