OLAM INTERNATIONAL LIMITED
O32.SI
Commodity & Currency Volatility
- 2Q15 in line, with 1H operational profit at 49% of our FY15F.
- Expect 2H to be weaker from seasonality, FX volatility in emerging markets & one-off restructuring charges in Uruguay. Cut EPS by 15-20% for recent movements in commodity prices & currencies.
- Maintain HOLD. Lower TP to SGD1.90 from SGD2.07, now at 9x P/E instead of 11x. Prefer Wilmar in sector.
Results broadly in line
- 2Q15 results broadly met expectations, with 1H operational net profit at 49% of our FY15F.
- Volume declined 17% YoY and revenue, 16% YoY as Olam exited non-core businesses such as grain operations.
- Operational net profit increased 96% YoY from last year’s low base. Highlights include:
- edible nuts did well in 2Q15. Almonds retained their strength, aided by record prices and AUD depreciation;
- EBITDA for confectionery and beverage ingredients grew 10%, thanks to higher volume and cocoa prices;
- Uruguay dairy farming continued to reel under lower global raw-milk prices; and
- African and South American currencies were volatile, hitting business sectors such as Argentinian peanuts, packaged foods in Nigeria and palm refining in Mozambique.
Maintain HOLD
- We expect 2H to be weaker HoH on account of:
- seasonality;
- FX volatility in emerging markets; and
- one-off restructuring charges for its Uruguay dairy farming.
- Olam has decided to reduce farm sizes in Uruguay and cull milk cows, given their continued underperformance.
- We cut our earnings by 15-20% for the next three years after factoring in recent movements in certain soft commodity prices and currencies.
- Our TP is also down to SGD1.90 from SGD2.07 after we roll over to FY16 and the application of a lower 9x P/E target (1SD below) from 11x (5-year mean).
- This is to reflect current bearish sentiment on the commodity sector.
Wei Bin | http://www.maybank-ke.com.sg/ Maybank KE 2015-08-14
1.90
Down
2.07
