• 2QFY15 NPAT below forecast
• Still buying assets
• Likely distorted FY15 estimates

2QFY15 still slightly soft

Olam posted a slightly weaker-than-expected 2QFY15 results. Although revenue grew 8.3% YoY to S$4879.4m, EBITDA slipped 11.3% to S$278.3m, affected mostly by adverse currency devaluations, lower trading volumes and underperformance in hazelnuts and Dairy farming in Uruguay. Reported net profit slipped 12.0% to S$118.7m; operational NPAT fell by a larger 18.5% to S$105.1m. For 1HFY15, revenue was up 4.0% at S$9178.0m, meeting 44% of our full-year forecast, while reported NPAT slipped 9.7% to S$163.0m; operational NPAT tumbled 21.4% to S$137.3m, or 31% of our FY15 estimate. We note that this is also at the lower end of its 30-40% earnings guidance for seasonality.

Hazelnuts, Dairy and forex impacted bottomline

In 2QFY15, Edible Nuts saw lower volumes shipped as it had partially discontinued operations at its cashew processing facility in Nigeria, while lower EBITDA was also due to challenges in the hazelnut business. Food Staples and Packaged Foods also saw a hefty volume decline due to discontinued operations in Australia and South Africa, while the continued underperformance of Dairy farming operations in Uruguay and the impact of currency devaluation affected EBITDA.

Still on buying spree

In 2QFY15, Olam made a divestment that had a positive S$217.8m cashflow; it has also turned FCFF positive to the tune of S$75.6m in 1HFY15, although we note that Olam still incurred a negative net operating cashflow of S$67.5m. Meanwhile, Olam has made several acquisitions of late, including the move to acquire the global cocoa business of Archer Daniels Midland (ADM) for US$1.3b, with deal to be concluded by Jun 2015. Currently, Olam has a net gearing of 1.85x as of 31 Dec 2014 versus its target of <2.0x. FY15 estimates likely to be distorted Due to the change in financial year end, our FY15 estimates are likely to be quite distorted until we get a better sense of the new seasonality of its earnings. For now, we are keeping our fair value unchanged at S$2.30 and our HOLD rating.

Source: OCBC Research - 17 Feb 2015