• Olam to remain listed
• Mixed 9MFY14 results
• SELL for now

Consortium now owns 80.4%

The S$2.23/share cash offer for Olam International by a consortium led by Breedens Investment – a Temasek-owned unit – has closed on 23 May, with the group collectively owning 80.4% of all issued shares (71.9% of fully diluted share capital). As the free-float of the company remains well above the 10% threshold, Olam will continue to be listed on SGX.

Slightly mixed 9MFY14 results

Separately, Olam posted a slightly mixed set of 9MFY14 results recently. Revenue was down 5% at US$13,664.1m and met about 59% of our full-year forecast; this mainly dragged down by lower volumes in its Industrial Raw Materials segment. Nevertheless, modest margin improvements and one-off gains (S$271.0m from reclassification of an asset) saw reported net profit jumped 89% to S$576.7m. Excluding one-off items, operational PATMI dropped 8% to S$277m, which still met 70% of our FY14 estimate.

Still very much work-in-progress

Olam continues to execute on its strategic plan (with focus on extracting value from existing operations and investments, and not pursuing volume growth), and has completed nine of the 12 strategic initiatives it had announced in Apr 2013. The other three initiatives, which are expected to be completed in FY14, are likely to release S$154.6m of additional cash, generate a P/L gain of S$22.8m. Olam has also moderated the pace of new investments and incurred a 33% lower capex of S$502.0m in 9MFY14. However, FCFF remains an outflow of S$707.1m (versus –S$861.7m in 9MFY13); and it aims to be FCFF positive by end FY14.

No change to estimates for now

While 9MFY14 revenue was below our expectation, operational PATMI was just within forecast, hence we opt to leave our FY14 and FY15 estimates unchanged for now. We had previously advised shareholders to accept the offer of S$2.23. And with the expiry of the offer, we do not expect the current share price to be supported around current levels. Hence, we recommend a SELL on Olam with a new fair value of S$1.87 (10x FY15F EPS).

Source: OCBC Research - 27 May 2014