Olam

Olam: 3QFYMar13 results. Revenue climbed 12% YoY (but down 4% QoQ) to $4.72b. Headline net profit gained 10% YoY (but fell 30% QoQ) to $108.5m, while core earnings (adjusted for $13m of costs related to termination of sugar refinery projects in Nigeria and Brazil, etc) rose 23% to $121.5m. This compares with consensus estimates of $119m. Olam benefited from a surge in sales volume (3.88 mmt, +44% yoy) and net contribution ($422.8m, +26%). The quarter included the opening of a A$60m almond hulling and processing facility in Australia and announcement of the divestment of a non-core basmati rice milling facility in India. The Food Staples & Packaged Goods (volume +90%, net contribution per ton +28% to $74) and Industrial Raw Materials (volume +5.4%, NC per ton +29% to $113) segments both continued to perform strongly this quarter. Editble Nuts, Spices & Beans (volume -7.7%, NC per ton -13.2% to $249) was impacted by lower capacity utilization and continuing margin pressures in the industrial tomato paste business as the unit works through the high carry-over inventory from the previous year. Also the Confectionery & Beverage Ingredients segment was weak (volume -8.8%, NC per ton -4.6% to $194), due to coffee rust disease affecting its coffee origination and shipment volumes from Central and South America. Mgt believes the group operates in the attractive agri-sector with strong growth prospects; the group’s leadership position in many of its segments means it will be able to capitalize on the major secular trends that favor the continuing growth and upside possibilities of the industry. Reiterates its Strategy Review announced back in Apr is being implemented and is expected to generate profitable growth and enhanced cash flow generation in the coming quarters. The stock trades at 11.0x P/E, 1.2x P/B. OCBC places its Hold rating and TP $1.50 under review pending analyst briefing later.