Olam

Olam: Announced 4Q12 results which were in-line but at the upper end of estimates. Rev at $5.15b, +12.7% yoy and +21.7% qoq, while net profit at $109.5m, -14% yoy and +10.9% qoq. Result brings FY12 rev to $17.1b, +8.2% yoy and core net profit to $355.5m, -4.6% yoy. NC margins for the qtr at 8.5% vs 8.9% yoy and 7.9% qoq, while NC margins for FY12 at 8.1% vs 7.7% yoy. Total Sales vol for the qtr at 3.5m mt, +50.7% yoy and +29.6% qoq, led by grp’s food related business segments, which accounted for 76.4% of grp’s rev and 87% of NC. Grps performance was however dragged by lower NC’s from its non-food categories consisting of IRM and Commodity financial services, due to unfavourable and volatile conditions, esp in Cotton. (See segment preview below for more info on the diff segments) Grp’s bottom-line was also attributed to a sharp rise in other operating expenses at $174.6m, +109% yoy and employee benefit expenses at 180.1m, +81.9% yoy. Going forward, grp note that the cyclical events experienced over the past year in the IRM and CFS segments could have some continuing impact in FY2013. However, Olam remains positive about the long-term fundamentals of the industry, as well as the overall business model and will continue to execute on the strategy to grow long term intrinsic value across all existing business segments. Ratings as follow: CIMB maintains O/P with Deutsche maintains Buy but cuts TP to $2.30 from $2.90 UOB Kay Hian maintains Buy with $2.55 TP OCBC maintains Hold with $1.60 TP Maybank-KE maintains Sell with $1.75 TP Segments preview as follow: 1) Edible Nuts, Spices & Beans: Edible Nuts and the Spices & Vegetable Ingredients businesses performed well, supported by increases in almond production from Australia and US, above plan performance of US and Argentinean Peanut operations, introduction of Hazelnuts into the portfolio (with acquisition of Progida Group) and expansion of spices business with acquisition of Vallabhdas Kanji in India. 2) Confectionery & Beverage Ingredients segment: Continued to register strong NC growth. Cocoa business had another good yr, despite very lacklustre market conditions. The integration of Macao Commodities (Spain) and Britannia Foods (UK) provided additional sources of value and increased Olam’s presence and reach. Coffee business performed well with mkt share gains in most origins, including new Arabica operations in Mexico and Guatemala. 3) Food Staples & Packaged Foods segment: Recorded stong sales Volume and NC growth at 84.5% and 34.7% respectively. Rapidly expanding Grains business drove strong vol and NC growth. Dairy and Sugar businesses faced difficult market conditions due to unfavourable trading and adverse weather conditions. The Packaged Foods business gained further momentum with several acquisitions during the year contributing to the expansion of Olam’s product offering and distribution reach in West Africa. 4) Industrial Raw Materials segment: Dragged on grp’s NC, with vo l, +7.5% and NC -48.0%. Margin per ton was reduced by 51.6% to S$135. Cotton business, particularly the Australian, Brazilian and the US origination and marketing operations, was impacted by extreme market volatility, declining volumes from growers and enhanced customer counterparty risk in some Asian markets.