• 1H Op PATMI met 57% of FY forecast
• Long-term prospects still attractive
• But hampered by trading liquidity

2Q16 PATMI +20%

Olam reported its 2Q16 revenue rising 3% YoY to U$3482.0m, driven by 20% higher sales volumes in all segments except Edible Nuts, Spices & Vegetable Ingredients; but mitigated by lower prices of certain commodities. Reported PATMI came at S$114.9m, +20%, boosted by improved operational performance in the overall Food Category; operational PATMI was up 19% at S$114.8m.

1H16 revenue grew 6.7% to S$9742.8m, meeting 46% of our full-year forecast, while PATMI jumped 73% to S$228.6m; operational PATMI eased 3% to S$221.3m, meeting 57% of our FY16 estimate, just at the lower end of its seasonal trend where 1H core earnings usually make up between 60% and 70% of total full-year earnings. Olam declared an interim dividend of S$0.03/share, versus S$0.025 in 1H15.

Still upbeat about long-term prospects

Despite the recent volatility in agri-commodity prices, management believes that the long-term trends in the sector remain attractive, and Olam is well positioned to benefit from it; this aided by its selective integration of its core global supply chain business into higher value upstream and mid/downstream segments. Adds that its diversified and well-balanced portfolio with market-leading positions in many segments provides a resilient platform to navigate the current uncertainties in the global markets. Last but not least, it now has the strong balance sheet and liquidity position to pursue profitable growth.

Came a long way since Muddy Waters

And speaking of its improved liquidity/debt situation, Olam has definitely come a long way since the Muddy Waters incident back in Nov 2012; this after raising capital via a rights and bond issue, as well as making key strategic changes to prune non-core businesses and refocus on profitability. We also witnessed Temasek - through Breedens Investment - making a cash offer of S$2.23/share for Olam in Mar 2014, which we deemed was fairly attractive then, given the still-muted outlook for commodities. However, the offer has severely reduced Olam's trading liquidity since then, and to better allocate internal resources, we are CEASING COVERAGE on the company.

Source: OCBC Research - 15 Aug 2016