Olam International - UOB Kay Hian 2015-11-16: 3Q15 Results In Line; Hope For A Better 4Q15

Olam International - UOB Kay Hian 2015-11-16: 3Q15 Results In Line; Hope For A Better 4Q15 OLAM INTERNATIONAL LIMITED O32.SI 

Olam International (OLAM SP) 3Q15: Results In Line; Hope For A Better 4Q15 

  • OLAM’s 3Q15 results were in line. The company reported a core net profit of S$34.2m (-64.1% qoq, +6.3% yoy) and 9M15 core net profit of S$257.9m (+41.0% yoy). 
  • The Edible Nuts, Spices & Vegetable ingredients division remained strong. 
  • Restructuring of the dairy business in Uruguay is still underway, from which OLAM expects to record a one-off cost in 4Q15. 
  • With 4Q being a seasonally stronger quarter and usually contributing to about 30% of OLAM’s full-year earnings, we expect a stronger earnings performance in 4Q15. 
  • Maintain BUY. Target price: S$2.30. 


• 3Q15 a weaker quarter. 

  • Olam International (OLAM) reported 3Q15 core net profit of S$34.2m (-64.1% qoq, +6.3% yoy). For 9M15, core net profit stood at S$257.9m (+41.0% yoy). 
  • Results were within expectations on a better performance from the Edible Nuts, Spices & Vegetable Ingredients as well as Confectionery & Beverage Ingredients divisions which mitigated the lower contributions from the Food Staples & Packaged Foods and Industrial Raw Material divisions. 

• Dairy business remains challenging, dragged by low prices and internal operational inefficiency. 

  • Restructuring efforts have been underway since 1Q15 to reduce the number of farm herds. OLAM’s management guided that its dairy business will take another two years to turn profitable and that there will be a one-off restructuring cost in 4Q15. 


• Edible Nuts Spices & Vegetable Ingredients division remains strong. 

  • Performance of this division was driven by higher almond sales volume and margin which expanded on a weaker Australia dollar. 
  • In 3Q15, despite this division’s overall sales volume having declined both qoq and yoy, this division still registered revenue growth of 4.7% qoq and 36.3% yoy mainly driven by higher almond and cashew prices. 
  • Despite higher revenue, EBITDA dropped 32.6% qoq (+4.6% yoy) due to the underperformance of the peanut business in Argentina. 
  • For 9M15, EBITDA edged up 12.9% yoy on the back of strong revenue growth of 15.8% yoy. 

• Weak qoq performance from Confectionery & Beverage Ingredients. 

  • Slower sales volume growth of 20.6% qoq led to a drop in revenue (-25.7% qoq). Nevertheless, this segment still recorded better yoy earnings supported by higher cocoa and coffee sales as well as better performance from the soluble coffee facility in Vietnam. 
  • This division’s EBITDA rose 1.9% yoy for 3Q15 and 6.9% yoy for 9M15. 

• Food Staples & Packaged Foods registered a lower EBITDA margin. 

  • Sales volume was strong in 3Q15 (+39.0% qoq, 12.8% yoy), while revenue increased 16.9% qoq (- 3.6% yoy). However, the lower EBITDA margin of S$14/tonne (vs S$33/tonne in 2Q15 and S$34.9/tonne in 3Q14) due to the underperformance of its dairy farming operations, palm refining business and packaged foods business, had EBITDA dipping 41.1% qoq and 54.9% yoy. 
  • Meanwhile, lower sales volume and the softened commodities price led to a 9M15 revenue slump of 31.1% yoy. 


  • Maintain earnings forecast. We are expecting an EPS of 11.4 US cents, 14.4 US cents and 14.3 US cents for 2015, 2016 and 2017 respectively. 


  • Maintain BUY with a target price of S$2.30, which is based on higher PE of 16.2x (10- year mean) on 2016 fully diluted EPS. 
  • We like the stock’s medium-term prospects on the back of: 
    1. volume growth in the medium term which should be boosted by OLAM leveraging on Mitsubishi Corp’s strengths, and 
    2. business structuring which has been ongoing for two years ago is now turning in positive results in terms of margin improvement. 


  • Continued efforts to strengthen its balance sheet, ie improving free cash flow and lowering its gearing. 
  • Market share and earnings enhancement via M&As.

Singapore Research Team UOB Kay Hian | http://research.uobkayhian.com/ 2015-11-16
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 2.30 Same 2.30