Olam

Olam: UOBK says Olam's stock price will likely remain muted until its bonds recover. Says, if bond yields continue to rise, the group is likely to adopt lower net gearing levels and as a result, ROE could be capped. Hurdle rates for new investment initiatives may also be harder to cross with a higher weighted average cost of capital. The house cuts TP to $1.98 from $2.32 after switching methodology to a dividend-discount model from the previous 13.5X P/E valuation. While UOBK believes growth prospects remain reasonable over the next three years, growth could slow post-FY16 as earnings from its current initiatives come on stream. Lowers FY13 net profit forecast by 5% to $396 m, mainly on higher finance costs due to the rights issue of bonds with attached warrants and higher refinancing rates. Also prices in the expected dilution from the warrants' exercise in three years. But keeps a Buy call, as Olam is currently trading at an all-time low of 1.1X 2013F P/B. The stock is up 0.4% at $1.445.