Olam

Olam: Following latest rubber investments in Gabon, UOB Kay Hian maintains Buy with $2.93 TP. House note that investment is not surprising as the grp has clearly articulated its strategy to drive growth by selectively expanding into value chain adjacencies, which could boost margins.

In addition, this rubber JV has several attractive characteristics including: a) scalability, b) is part of a growing industry, c) low agronomy risk as rubber trees are sturdy and less affected by infestations and disease outbreaks, d) having a late mover advantage as newcomers can use superior clones for new plantings, and e) rubber is actively traded and allows for hedging.

In addition, this JV will also enjoy a 15-year tax holiday. Other than Greenfield investments, the group’s overall rubber strategy could also include Brownfield investments, supply chain/rubber trading as well as its SIFCA JV in West Africa. The SIFCA JV has operations across Ivory Coast, Nigeria and Ghana and provides Olam with valuable insights and local knowledge, which would help curtail execution risk for the Gabon Greenfield investment.