OLAM INTERNATIONAL LIMITED
O32.SI
Olam International - CEASING COVERAGE
- 1H Op PATMI met 57% of FY forecast.
- Long-term prospects still attractive.
- But hampered by trading liquidity.
2Q16 PATMI +20%
- Olam reported its 2Q16 revenue rising 3% YoY to U$3482.0m, driven by 20% higher sales volumes in all segments except Edible Nuts, Spices & Vegetable Ingredients; but mitigated by lower prices of certain commodities.
- Reported PATMI came at S$114.9m, +20%, boosted by improved operational performance in the overall Food Category; operational PATMI was up 19% at S$114.8m.
- 1H16 revenue grew 6.7% to S$9742.8m, meeting 46% of our full-year forecast, while PATMI jumped 73% to S$228.6m; operational PATMI eased 3% to S$221.3m, meeting 57% of our FY16 estimate, just at the lower end of its seasonal trend where 1H core earnings usually make up between 60% and 70% of total full-year earnings.
- Olam declared an interim dividend of S$0.03/share, versus S$0.025 in 1H15.
Still upbeat about long-term prospects
- Despite the recent volatility in agri-commodity prices, management believes that the long-term trends in the sector remain attractive, and Olam is well positioned to benefit from it; this aided by its selective integration of its core global supply chain business into higher value upstream and mid/downstream segments.
- Adds that its diversified and well-balanced portfolio with market-leading positions in many segments provides a resilient platform to navigate the current uncertainties in the global markets.
- Last but not least, it now has the strong balance sheet and liquidity position to pursue profitable growth.
Came a long way since Muddy Waters
- And speaking of its improved liquidity/debt situation, Olam has definitely come a long way since the Muddy Waters incident back in Nov 2012; this after raising capital via a rights and bond issue, as well as making key strategic changes to prune non-core businesses and re-focus on profitability.
- We also witnessed Temasek - through Breedens Investment - making a cash offer of S$2.23/share for Olam in Mar 2014, which we deemed was fairly attractive then, given the still-muted outlook for commodities.
- However, the offer has severely reduced Olam's trading liquidity since then, and to better allocate internal resources, we are CEASING COVERAGE on the company.
Carey Wong CFA
OCBC Investment
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http://www.ocbcresearch.com/
2016-08-15
OCBC Investment
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