Olam

Olam: Strong set of 2Q13 results which were above average street estimates. Rev at $4.9b, +9.2% yoy and +4.5% qoq, while core net profit at $136.1m, +5.9% yoy and +42.1% qoq. Sales vol surged at 4.1m mt, +53.8% yoy. Result brings 1H13 Net Contributions to $734,4m, +21% yoy and net profit to $179.2m, +10.1% yoy. NC margins improved at 8.6% vs 7.9% yoy. 1H13 saw stronger performances in grp’s main 2 divisions, Grp's food category segments, which accounted for 88.6% of total vol & 88.4% of Net contributions, saw sales vol increase by 83.1% and NC by 20% vs 1H12. Sales Vol for the Non-food category improved by 16.1% and NC increased by 29.2% as the Industrial Raw Materials segment reported a 45.0% growth in NC which was partially offset by the decline in NC from the Commodity Financial Services segment. Going forward, grp note that it is pleased with the overall results of 1H13 and continue to see healthy growth rates in the Food Category and a recovery in the Cotton business within the Industrial Raw Materials segment. Add that it has successfully stabilised the situation that surrounded the Co in the recent past. Grp has successfully completed a sale and lease back of 4,795 acres of Almond Orchards which releases cash and will enhance returns and provides a model for replicating this structure in other platforms and geographies. Olam will also review its capex plans and be more prudent going forward, choosing to terminate the previously announced acquisition of sugar milling assets in Brazil where it could not reach a satisfactory agreement with the vendors on commercial terms. Ratings as follow: DMG maintains Buy with $1.97 TP HSBC maintains O/w with $2.35 TP Nomura maintains Buy with $2.30 TP UOB Kay Hian maintains Buy with $1.98 TP CIMB maintains Neutral with $1.59 TP Maybank-KE maintains Sell with $1.30 TP Segmental review as per follow: - Edible nuts and spices: Segment saw Sales Vol at 0.72m mt, +12.5% yoy and NC at $180.5m, +18.5% yoy. The growth in vol came from both existing businesses as well as the acquired Hazelnuts business in Turkey. The Peanut business continued to perform well, boosted by a large crop in the US which aided full capacity utilisation at the blanching facilities. - Confectionery & Beverage Ingredients: Sales vol at 0.70m mt, -3.9% yoy and NC at $170.5m, +4.4% yoy. Higher NC was due to improving supply chain margins, as well as enhanced margins resulting from investments in upstream coffee plantations and midstream cocoa processing in Spain and UK. - Food Staples & Packaged Foods: Sales Vol at 5.5m mt, +128.7% yoy and NC at $298.2m, +32.2%. The Grains business continued to lead volume growth as it generated higher origination and milling volumes. Rice, Palm and the larger Packaged Food businesses also contributed to volume growth. Rice, Palm and Packaged Food businesses continued to perform well while Dairy business was behind plan. - Industrial Raw Materials: Recorded a Sales Volume growth of 16.1% and a growth of 45.0% and 24.8% in NC and NC per tonne respectively in H1 FY2013. The Cotton business saw both vol and margin recovery during the period and is expected to stabilise at these levels from H2 FY2013. The Wool and Rubber businesses were on track while Wood products remained flat. - Commodity Financial Services: Reported a loss at NC level of S$9.8m in H1 FY13 vs a gain of $0.4m yoy, due to difficult trading conditions. While some recovery is anticipated in H2 FY2013, overall performance for CFS is expected to be below plan for FY13.