OLAM INTERNATIONAL LIMITED
O32.SI
OLAM - MAINTAIN HOLD WITH LOWER S$1.86 FV
3Q below expectation
Near-term outlook remains muted
Pare FV from S$1.88 to S$1.86
Weaker 3Q15 showing
- Olam’s 3Q15 revenue was up 4% YoY at S$4471.5m, with all segments registering growth except its Food Staples & Packaged Foods segment, which faced lower volumes, prices and continued underperformance of its upstream Dairy operations. And because of this, EBITDA slipped 18% to S$184.0m, while reported net profit tumbled 30% to S$31.0m; operational NPAT rose 6% to S$34.2m.
- 9M15 revenue though dipped 9% to S$13,604.2m, meeting 65% of our full-year forecast, while reported net profit tumbled 67% to S$157.0m. However, Olam noted that operational NPAT jumped 41% to S$258.0m, meeting about 65% of our FY15 estimate.
Dairy operations continued to underperform
- One of the biggest drags came from the Food Staples & Packaged Foods segment, where EBITDA margin nearly halved to 2.3% from 4.9% in 3Q14 (4.6% in 2Q15), due to reduced trading volumes and as Dairy operations continued to underperform. But Olam is restructuring the dairy farming business in Uruguay and it expects to book a one-time restructuring cost in 4Q15.
- Meanwhile, the Industrial Raw Materials segment continued to see lower volumes, mainly due to lower Fertilizer trading, cotton and wood Products volumes; while the SEZ business continues to be a drag on EBITDA.
Remains upbeat about Mitsubishi JV
- Outlook for commodities is likely to remain a mixed bag, and while prices are mostly lower, management notes that it is due to higher supply, and not because of lower demand, especially for food-related commodities. In any case, Olam will continue to optimize the shape of its portfolio and reduce complexity, thus bringing a sharper focus to the business and reduce operating costs.
- Separately, management remains upbeat about its JV with Mitsubishi to import and market an agreed list of products (e.g. coffee, sesame, edible nuts etc) into Japan.
- Olam also sees opportunities for both of them to collaborate in mutually beneficial business opportunities.
Maintain HOLD with S$1.86 fair value
- While we think that the collaboration is a medium-term positive, the near-term bearish commodities outlook is likely to weigh on sentiment.
- Note that we are also paring our earnings estimates for FY15 by 19% and FY16 by 12%. This in turn drops our fair value from S$1.88 to S$1.86 even as we push our 10x valuation peg from blended FY15/FY16 to FY16F EPS.
- Maintain HOLD.
Carey Wong CFA
OCBC Securities
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http://www.ocbcresearch.com/
2015-11-13
OCBC Securities
SGX Stock
Analyst Report
1.86
Down
1.88
