Olam International - OCBC Investment 2016-02-29: HOLD with Lower $1.67 FV

Olam International - OCBC Investment 2016-02-29: HOLD with Lower $1.67 FV OLAM INTERNATIONAL LIMITED O32.SI 

Olam International - HOLD with Lower $1.67 FV 

  • FY15 within forecast 
  • Still very much work-in-progress 
  • Pick up may come in 2017 

Soft end to FY15 

  • Olam reported a softer 4Q15 performance as expected; although revenue grew 11.7% yoy to S$5448.4m, it reported a net loss of S$221.3m, hit by a large exceptional loss of S$296.1m; this mainly due to the loss of its equity investment in PureCircle Limited (S$192.6m) and the one-time cost on the buyback of higher cost debt (S$126.5m), but partially offset by gain on sale-and-leaseback of Gabon Palm plantation (S$33.6m). 
  • Still, operational PATMI fell 16.2% to S$88.2m. 
  • For 12M FY15, revenue slipped 3.6% to S$19052.6m, or 0.2% shy of our FY15 estimate, while reported PATMI came in at – S$64.3m; operational PATMI though climbed 20.1% to S$346.1m, or about 6.5% above our full-year forecast. 
  • Olam declared a final dividend of 3.5 S cents, bringing the full-year payout to 6 S cents, versus 7.5 S cents in FY14. 

Sales volume down due to discontinued businesses 

  • Sales volume fell nearly 11% in 12M FY15, with the most significant impact coming from discontinued Grains operations in certain geographies within the Food Staples & Packaged Foods segment (- 16% at 7904.9k MT). 
  • Olam also saw continued underperformance from its Dairy operations in Uruguay; but it has closed a significant number of dairy farms and reduced herd population there; subject to dairy prices, Olam expects the business to turn profitable in 2017. 

Still looking to sharpen focus, reduce operating costs 

  • Going forward, Olam intends to sharpen its focus as per its strategic review, where it will continue to prune unprofitable businesses and pursue selected value chain adjacencies which both complement and enhance its core supply chain model. 
  • One example is the Mitsubishi JV to import and market an agreed list of products (like coffee, sesame, edible nuts etc) into Japan. Olam also sees opportunity for both of them to collaborate in mutually beneficial business opportunities. 
  • Meanwhile, Olam will also be looking to reduce operating costs – it has already started to re-balance its debt tenors as well as optimizing working capital utilization across the supply chain. 

Keep HOLD with lower S$1.67 FV 

  • We have pared our FY16 earnings estimate by 8%; this in turns reduces our fair value from S$1.86 to S$1.67, still based on 10x FY16F EPS. 
  • Maintain HOLD for now.

Carey Wong CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-02-29
OCBC Securities SGX Stock Analyst Report HOLD Maintain HOLD 1.67 Down 1.86