Warrants Highlight

Olam - 'Outperform' rating

Macquarie is listing new warrants over Olam and NOL this morning.

-7.5% in a day after Muddy Waters
Olam recently made headlines after founder of investment firm Muddy Waters, Carson Block cast doubts on Olam’s accounting practices while speaking at a charity event in London on Monday, 19th November. The next day, Olam requested for a trading halt and only resumed trading at 3.30pm. Still the counter fell 7.5% for the day.

+4.7% for the next two days
Shortly after, Olam came out strongly to refute the accusations, stressing that its accounts have been drawn up properly in accordance with the provisions of the Company Act. On Wednesday 21st November, the company took legal action against Muddy Waters and Carson Block. General manager for investor relations said “the grounds are basically slander, libel and/or malicious falsehood”. Olam has recovered since Tuesday, rising 4.7%.

On 15th November, Macquarie Equities Research (MER) issued a research report on Olam, stating an ‘Outperform’ rating with a 12 month price target of $2.40. Below are excerpts from the report.

Strong volume growth. Olam’s volumes grew across the board. The near tripling in the Food Staples division stood out. It benefited from the powerful grains origination business out of Russia, Ukraine and Australia that Olam built up in the last few years. While some volume was brought forward due to fears of export curbs, Olam sees robust growth through the rest of the year.

Better cost control enabled operating income to come in 14% ahead of MER’s estimate. Higher interest expenses consumed some of this operating income improvement.

The path to clean net income now includes two steps: 1) Like most of the market, MER eliminates biological gains and 2) MER also deducts capital securities expenses. Olam eliminates the latter but not the former in its reported EPS.

Clean net income grew 12% year on year (YoY), on a like for like accounting basis. This was a key area of debate / confusion at the analyst meeting: While Olam reported biological gains in 1Q13 it didn’t report any in 1Q12. On that basis, despite what MER said in the previous bullet, MER thinks the right YoY comparison should be 1Q13 clean net income including biological gains versus 1Q12’s clean net income. MER explains this point further below. It may sound overly technical, and is only valid in this one YoY comparison case. But is important, as a straight head to head comparison using 1Q13 clean net income excluding biological gains would show a 12% YoY earnings contraction.

The real negative coming from the analyst meeting was management’s statement that MER should only expect material profit step-up from recent acquisitions in FY14 rather than FY13.

Singapore Market Wrap

Positive China data boost regional markets

China preliminary HSBC Manufacturing PMI data came in at 50.4 against it's previous level of 49.5 in October. A reading above 50 indicates expansion and this news was a possible catalyst that spurred regional markets into the green. The STI eventually climbed 0.9% to 2,986.63 day-on-day (dod).

Call STI 3100MBeCW130228 (RF9W) exercise level 3,100.*
Put STI 2950MBePW130228 (RG0W) exercise level 2,950.*

Macquarie upgrades DBS to Outperform from Neutral
Macquarie Equities Research's latest report on 21st November upgraded DBS from Neutral to Outperform. Analyst Matthew Smith's recent visit to DBS and management discussion after DBS' 3Q12 results announcement led to the view that DBS' share price valuation now reflects excess pessimism. DBS rose 1.3% to $13.89 dod.

Call DBS MB eCW130102 (O9KW) exercise price $14.00.*
Put DBS MB ePW121205 (Q7SW) exercise price $13.80.*

Rig builders power on
SembMarine and Keppel Corp continued their winning streak, jumping 4.0% and 2.7% respectively on Thursday's session. This is the fourth consecutive day of gains. This week, SembMarine has returned 6.6% while Keppel Corp rose 5.5% compared to the STI's 1.4%. SembMarine closed at $4.38 with Keppel Corp ending at $10.55 for the trading session.

Call SembMar MBeCW130502 (R0WW) exercise price $4.25.*
Call SembMar MBeCW130604 (RE6W) exercise price $4.80.*
Put SembMar MBePW130701 (R0OW) exercise price $4.40.*

Call KepCorp MBeCW130301 (R0IW) exercise price $10.50.*
Call KepCorp MBeCW130103 (MV8W) exercise price $10.909.*
Call KepCorp MBeCW130102 (Q7UW) exercise price $11.50.*
Put KepCorp MBePW130301 (RD3W) exercise price $10.80.*

Overnight Market Wrap

US equity market closed for Thanksgiving

Last night, the US equity market was closed for Thanksgiving, while equity markets in Europe rallied. The Euro Stoxx 600 added 0.6% for the day.

European markets gained after China's flash PMI released by HSBC Holdings and Markit Economics was at 50.4 in November compared to 49.5 in October. A reading above 50 signals an expansion.

Going forward, leaders of the European Union will meet next Monday, 26 Nov to discuss Greece's aid.

Overnight Markets

Indices	Last	Change
STI	2986.63	0.9%
HSI	21743.20	1.0%
DJIA	12836.90	0.4%
S&P 500	1391.03	0.2%
Nasdaq	2926.55	0.3%
China A50	6973.20	-0.6%

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Ex-dividend dates:
Fri 7 Dec: SPH ($0.17)