Olam International Limited posted 1HFY12 revenue of S$7,716.4m, up 18.8%, meeting 40.8% of our FY12 estimate; core net profit fell 13.2% to around S$ S$132.8m, which still met 42.8% of our full-year forecast; this is also in line with the group’s historical seasonality where it typically achieves around 35-40% of its earnings in the first half. Going forward, management remains positive of its prospects in 2HFY12; and is also on track to achieve US$1b net profit by FY16. As its results were mostly in line with our forecast, we will leave our estimates intact for now. Our fair value also remains unchanged at S$2.63 (18x FY12F EPS). Maintain HOLD.
1HFY12 results mostly in line
Olam International Limited posted 1HFY12 revenue of S$7,716.4m, up 18.8%, meeting 40.8% of our FY12 estimate, aided by strong sales volume growth of 15.8% to 4.52m metric tonnes (MT). Reported net profit came in at S$162.7m, down 7.1%, meeting 45.7% of our full-year forecast; but if we strip out gains from biological asset and derivative instruments, we estimate that core net profit would have fallen 13.2% to around S$132.8m, which still met 42.8% of our core full-year forecast; this is also in line with the group’s historical seasonality where it typically achieves around 35-40% of its earnings in the first half.
Margins improve, driven by volume growth
Food Staples & Packaged Foods registered the largest sales volume growth of 20.2% in 1HFY12, followed by Edible Nuts, Spices & Beans (+14.3%), and Confectionery & Beverage Ingredients (+13.0%). And because of the strong volume growth of 17.7%, Net Contribution (NC) surged by 32.1% to S$541.2m, while NC/MT rose 12.2% to S$143.9/ton. However, the more recession-prone Industrial Raw Materials did not fare as well; while volumes grew by 7.4%, the NC/MT actually fell 29.3% to S$86/ton, still weighed by the Cotton sub-segment.
Improvements likely in 2HFY12
Nevertheless, management believes that the situation in the Cotton industry has somewhat normalized and expects the “perfect storm” to abate in 2HFY12. Meanwhile, management remains confident that it is on track to achieve US$1b net profit by FY16, using a “granular” strategy on where to compete. In total, Olam aims to execute about 65 initiatives and notes that it has already executed 17 of its 24 planned initiatives for FY12 and aims to execute another 33 in FY13 and finally six in FY14.
Maintain HOLD with S$2.63 fair value
As its results were mostly in line with our forecast, we will leave our estimates intact for now. Our fair value also remains unchanged at S$2.63 (18x FY12F EPS). Maintain HOLD.
Olam International Limited posted 1HFY12 revenue of S$7,716.4m, up 18.8%, meeting 40.8% of our FY12 estimate, aided by strong sales volume growth of 15.8% to 4.52m metric tonnes (MT). Reported net profit came in at S$162.7m, down 7.1%, meeting 45.7% of our full-year forecast; but if we strip out gains from biological asset and derivative instruments, we estimate that core net profit would have fallen 13.2% to around S$132.8m, which still met 42.8% of our core full-year forecast; this is also in line with the group’s historical seasonality where it typically achieves around 35-40% of its earnings in the first half.
Margins improve, driven by volume growth
Food Staples & Packaged Foods registered the largest sales volume growth of 20.2% in 1HFY12, followed by Edible Nuts, Spices & Beans (+14.3%), and Confectionery & Beverage Ingredients (+13.0%). And because of the strong volume growth of 17.7%, Net Contribution (NC) surged by 32.1% to S$541.2m, while NC/MT rose 12.2% to S$143.9/ton. However, the more recession-prone Industrial Raw Materials did not fare as well; while volumes grew by 7.4%, the NC/MT actually fell 29.3% to S$86/ton, still weighed by the Cotton sub-segment.
Improvements likely in 2HFY12
Nevertheless, management believes that the situation in the Cotton industry has somewhat normalized and expects the “perfect storm” to abate in 2HFY12. Meanwhile, management remains confident that it is on track to achieve US$1b net profit by FY16, using a “granular” strategy on where to compete. In total, Olam aims to execute about 65 initiatives and notes that it has already executed 17 of its 24 planned initiatives for FY12 and aims to execute another 33 in FY13 and finally six in FY14.
Maintain HOLD with S$2.63 fair value
As its results were mostly in line with our forecast, we will leave our estimates intact for now. Our fair value also remains unchanged at S$2.63 (18x FY12F EPS). Maintain HOLD.
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