Maybank Kim Eng 2015-08-30: Olam International - Vote of Confidence by Mitsubishi.


Vote of Confidence by Mitsubishi 

  • Strategic partnership with Mitsubishi via share placement. Opportunity for collaboration across geographies & products. 
  • Raise earnings by 3-5% but dilute EPS by 7-9% for new shares. TP climbs to SGD2.15 from SGD1.90. 
  • Positives priced in. Maintain HOLD. Prefer Wilmar in sector. 

Partnership with Mitsubishi 

  • Olam announced a strategic partnership with Mitsubishi via a placement of 332.7m new shares - 12% of its enlarged share base - at SGD2.75 each to Mitsubishi, a 44% premium to last Thursday’s closing price. 
  • Olam will raise SGD915m. Mitsubishi will also acquire 220m vendor shares from founding family, Kewalram Chanrai Group (KCG). Olam will henceforth be 51% owned by Temasek, 20% by Mitsubishi, 6% by management and 4.8% by KCG. Its free float will drop to 17.5% after the transactions. 
  • Olam will, in addition, form a JV with Mitsubishi to import some of its products into Japan. 

Positives priced in; maintain HOLD 

  • In our view, the partnership offers both the chance to collaborate across geographies and products and strengthen their relationship. The JV with Mitsubishi will enable Olam to leverage the latter’s strong distribution network for expansion in Japan. Olam’s strong sourcing and distribution ability in emerging markets will offer Mitsubishi immediate exposure to these markets. Proceeds raised will be used by Olam for accretive acquisitions. 
  • Mitsubishi’s price for Olam at 14x FY16 P/E and 1.3x P/BV is on the high side against peers such as Wilmar: 9x FY16 P/E and 0.7x P/BV. After strong share-price performance in the last two days, positive catalysts have been priced in. 
  • Maintain HOLD with a higher TP of SGD2.15 from SGD1.90, now at 11x FY16 P/E (5-year mean) from 9x (1SD below mean). This is to reflect its strengthened platform with Mitsubishi. 
  • We raise FY16-17 sales slightly for stronger sales of coffee, cocoa and edible nuts in Japan. This lifts our net profit by 3-5%. EPS is diluted by 7-9% by its new shares.

Wei Bin | Maybank KE 2015-08-30
HOLD Maintain HOLD 2.15 Up 1.90