Olam

Olam: Maybank-KE believes that the recent private share placement to Mitsubishi Corp is a huge vote of confidence by the Japanese trading giant. Given its current valuations, the house is maintaining its Hold rating with a higher TP of $2.15 (previously $1.90).

Olam is expected to raise about $915m from the placement exercise with Mitsubishi becoming its second largest shareholder with a 20% stake and the counter’s free float dropping from 21.5% to 17.5%.

The deal is part of a wider strategic partnership which would enable collaborative opportunities for both companies to tap into their respective geographic markets and product range. For one, it would give Olam access to MItsubishi’s domestic distribution network and allow the latter to leverage on Olam’s sourcing and distribution exposure to emerging markets, particularly in Africa.

While the new funds raise may augment Olam's future acquisitions, Maybank-KE opines that much of the near term positives has already been priced in. This is particularly so given that Olam is now trading at about 10.6x FY16 P/E, ahead of Wilmar’s 9x.

This comes even as the house raised its TP to account for the group’s strategic partnership with Mitsubishi, with FY16/17 revenue expected to strengthen on the back of increased sales of coffee, cocoa, and edible nuts in Japan.

Overall, the private placement exercise is expected to dilute EPS by about 4% after taking into consideration a 3-5% increase in net profit.