Olam International Limited

OCBC on 16 May 2012

Olam International Limited (Olam) reported 9MFY12 revenue of S$11,947.7m and estimated core net profit of S$215.3m, meeting 63.2% and 60.5% of our FY12 estimates respectively. Going forward, Olam seems to be a tad more optimistic about its Food business; and more muted towards its Industrial Raw Materials segment. While we are keeping our FY12 and FY13 estimates intact, we note that the market is adopting a more “risk off” approach in light of the renewed global economic uncertainties. In response, we lower our fair value to S$2.24 from S$2.63, based on 15x blended FY12/FY13F EPS (vs. 18x FY12F previously). We maintain our HOLD rating in anticipation of more near-term weakness among commodity plays.

9MFY12 results mostly in line
Olam International Limited (Olam) reported 9MFY12 revenue of S$11,947.7m, up 6.3%, meeting 63.2% of our FY12 forecast, on the back of a 17.2% increase in sales volume to 7.22m metric tonnes (MT). Reported NPAT fell 13/6% to $$261.4m; but excluding gains from biological assets and derivative instruments, we estimate that core net profit would have fallen 16.5% to S$215.3m, or 60.5% of our core FY12 forecast. But we believe that this is still in-line with the group’s historical seasonality where it typically achieves around 60-65% of its earnings in the first nine months.

Food outlook still upbeat
Olam’s Food segment saw sales volume rise by 20.6% in 9MFY12; net contribution (NC) climbed 30.9%, as NC per ton also increased 8.5% to S$139. It now accounts for 84.2% of overall volume and 78.4% of 9MFY12 revenue. Going forward, Olam remains upbeat about its prospects, particularly upstream dairy farming in Russia and making biscuits and candy in Nigeria – the second largest market in Africa for packaged food consumption.

Industrial Materials more muted
Industrial Raw Materials category turned in a more muted performance. Although sale volume grew 2.1%, NC fell 34.8% on the back of a 36.2% decline in NC per ton to S$86. Olam notes that its Cotton and Wood Products BUs continued to face strong headwinds in 9MFY12. It now does not expect to see any rebound in the Cotton business in FY12. Nevertheless, it is slightly more optimistic about its Wood business, noting that the markets have began to see a slight recovery.

HOLD with lower S$2.24 fair value
While we are keeping our FY12 and FY13 estimates intact, we note that the market is adopting a more “risk off” approach in light of the renewed global economic uncertainties. In response, we lower our fair value to S$2.24 from S$2.63, based on 15x blended FY12/FY13F EPS (vs. 18x FY12F previously). We maintain our HOLD rating in anticipation of more near-term weakness among commodity plays.