Company Guide Olam International

Version 7 | Bloomberg: OLAM SP | Reuters: OLAM.SI Refer to important disclosures at the end of this report

DBS Group Research . Equity 1 Mar 2018

HOLD Positives priced in for now

Last Traded Price ( 28 Feb 2018): S$2.25 (STI : 3,517.94) Limited upside for now. We maintain our HOLD call on Olam Price Target 12-mth: S$2.31 (3% upside) (Prev S$2.15) International (Olam) with a revised TP of S$2.31. Olam appears

Analyst to have successfully integrated the US$1.2bn acquisition of Mervin SONG, CFA +65 6682 3715 [email protected] ADM Cocoa, and has achieved its target of positive free cash flow to firm/equity by end FY17. However, with limited upside

to our TP, we believe the stock will remain range bound. In What’s New addition, with return on equity (ROE) still suboptimal, a re-rating • FY17 core profit up 23% y-o-y - above expectations beyond its average PE multiple of 16x implied by our TP is • Better than expected performance from edible nuts unlikely at this stage.

• Achieves target of positive free cashflow to firm and Where we differ – Sell calls unwarranted. Consensus has sell equity ratings on Olam, which we believe is unwarranted. While Olam • Rewards shareholders with higher FY17 DPS of 7.5 Scts, still generates suboptimal returns, we believe the company up from 6.0 Scts in FY16 should deliver healthy 8% EPS growth in 2018, given continued

maturity of the upstream assets, growth of in its Edible Nuts and recovery at its Confectionary & Beverage division. In Price Relative addition, Olam has also delivered on its target of delivering S$ Relative Index positive free cashflows. 2.8 203 2.6 183 2.4 163 2.2 Significant medium-term upside. Despite our cautious stance on 2.0 143 1.8 123 Olam’s near-term share price performance, we remain positive 1.6 103 1.4 83 on Olam’s long-term outlook. Currently, Olam has S$3.9bn Feb-14 Feb-15 Feb-16 Feb-17 Feb-18 worth of immature assets which on maturity, could generate an Olam International (LHS) Relative STI (RHS) additional c.S$0.3bn-0.4bn in EBITDA. All these factors may Forecasts and Valuation allow Olam’s share price to re-rate closer to S$2.75 in the FY Dec (S$ m) 2016A 2017A 2018F 2019F medium term, price levels at which Mitsubishi acquired its most Revenue 20,587 26,273 27,416 26,445 recent equity interest in Olam. EBITDA 1,189 1,343 1,481 1,539 Pre-tax Profit 433 631 593 652 Net Profit 318 524 475 515 Valuation: Net Pft (Pre Ex.) 316 390 490 528 On the back of better than expected FY17, we raised our TP to Net Pft Gth (Pre-ex) (%) (6.7) 23.4 25.6 7.8 S$2.31 from S$2.15. Our TP is a blend of our PE valuation of EPS (S cts) 11.5 18.6 14.5 15.8 EPS Pre Ex. (S cts) 11.5 13.9 15.0 16.2 S$2.41 and our DCF valuation of S$2.20. EPS Gth Pre Ex (%) (12) 21 8 8 Diluted EPS (S cts) 9.76 16.0 14.5 15.7 Key Risks to Our View: Net DPS (S cts) 7.50 7.50 7.50 7.50 The key risk to our neutral stance is a faster than expected BV Per Share (S cts) 164 192 174 183 PE (X) 19.5 12.1 15.5 14.3 delivery of earnings from Olam’s gestating/immature assets PE Pre Ex. (X) 19.6 16.2 15.0 13.9 and deployment of over c.S$600m from the conversion of P/Cash Flow (X) 10.0 3.8 13.5 9.1 outstanding equity warrants. EV/EBITDA (X) 15.9 12.8 12.4 11.9

Net Div Yield (%) 3.3 3.3 3.3 3.3 P/Book Value (X) 1.4 1.2 1.3 1.2 At A Glance Net Debt/Equity (X) 2.0 1.5 1.4 1.4 Issued Capital (m shrs) 3,171 ROAE (%) 6.0 6.6 7.4 7.7 Mkt. Cap (S$m/US$m) 7,136 / 5,388 Earnings Rev (%): 6 15 Major Shareholders (%) Consensus EPS (S cts): 14.0 14.0 Pte Ltd 53.8 Other Broker Recs: B: 0 S: 1 H: 1 Mitsubishi Corporation 17.5 Source of all data on this page: Company, DBS Bank, Kewalram Singapore Ltd 7.1 Bloomberg Finance L.P Free Float (%) 14.6 3m Avg. Daily Val (US$m) 2.1 ICB Industry : Consumer Goods / Food Producers

ed: JS / sa:AS, PY, CS Company Guide Olam International

WHAT’S NEW Delivers on free cash flow targets

FY17 results above expectations • However, the confectionery & beverage ingredients segment had a weak year with EBITDA down 20% y-o-y • 4Q17 core profit (excluding exceptional, biological losses to S$328m. Despite volumes increasing by 22% y-o-y, and after perpetual dividends) jumped 55% y-o-y to margins were under pressure due to tougher market S$109.9m taking FY17 core profit to S$446.8m (+23%). conditions in the coffee business. This was partially offset • This was above expectations largely due to higher by better performance of the cocoa business as the contribution from the edible nuts segment as we had processing business benefited from firm combined cocoa under estimated the margins for the business. ratios. • Underpinning the robust 4Q17 and FY17 profitability was

the 85% and 56% increase in volumes on account of Fall in gearing due to conversion of warrants greater oil seeds and rice trading despite the difficulties experienced in the coffee business. • On the back of conversion of outstanding warrants into • Pleasingly, Olam also delivered on its stated target of shares worth c.S$585m, gearing as measured by net debt generating positive cash flows. For FY17, free cash flow (excluding readily marketable inventories)/equity fell to to firm (FCFF) and free cash flow to equity (FCFE) stood at 76.5% from 99.7% at end 4Q16. Post balance date, of S$1.5bn and S$1.0bn respectively. The positive cash another 50m warrants were converted into equity raising flows were achieved through a reduction in capex, c.S$72m. Given the stronger balance sheet, there is working capital optimisation and lower prices for certain potential for Olam to pursue acquisitions. . • Olam also remains in a strong liquidity position, with • On the back of higher earnings, Olam also lifted its final S$8.5bn of unutilised bank lines, readily marketable dividend to 4.0 Scts, taking dividends for the whole of inventories of S$4.5bn and cash of S$2.0bn. This is FY17 to 7.5 Scts up from 6.0 Scts in FY16. sufficient to cover its short-term debt of c. S$4.7bn.

Strong contribution from Edible Nuts and Food Staples Returns still sub-optimal

• The Edible Nuts segment had a strong end to the year • Owing primarily to Olam still having a large portion of with 4Q17 EBITDA rising 13% y-o-y to S$99.1m. This gestating or partly contributing assets worth S$0.3bn and translated to FY17 EBITDA of S$438.4m which was S$3.6bn respectively, Olam’s returns as measured by higher than our original S$351m forecast largely due to EBITDA/average invested capita (IC)l is still sub-optimal. higher than expected margins (EBITDA/MT of S$299 • For example, Olam’s gestating and partly contributing versus our forecast of S$254m). The robust esults were assets are only delivering EBITDA/average IC of -0.5% also attributed to strong FY17 volume growth of 7.8% and 2.8% compared to its target of between 15-18%. which came mainly from the cashew, almonds, sesame Likewise, the partially contributing mid/downstream and spices businesses. assets are generating EBITDA/average IC of 9.5% • The healthy FY17 performance was also attributed to a compared to target of between 13-16%. 9% y-o-y jump in EBITDA from the Foods Staples and • Even its fully contribution assets have room to improve Packaged Foods segment. The segment benefited from a with the upstream, supply chain and mid/downstream significant interest in trading volumes from grains which assets achieving an EBITDA/Average IC of 7.8%, 7.3% resulted in FY17 volumes jumping 78% y-o-y. The and 11.1% compared to target of 15-18%, 10-13% and division also posted a recovery in dairy and packaged 13-16%. food business post the stabilisation of the Nigerian Naira. • As Olam sweats its more mature assets and operating • The industrial raw materials division had an excellent conditions normalise in the coffee market as well as its FY17, with EBITDA jumping 46% y-o-y. The significant immature assets such as its rubber and palm plantations improvement was attributed to the commission of new reach full maturity, we believe there remains significant ports and the partial sale of the port concession rights in upside to Olam’s earnings going forward. Gabon in 4Q17. The core cotton business also did well, which contributed to the segment’s FY17 volume jumping 39% y-o-y.

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Company Guide Olam International

Positive momentum to flow into 2018 • Consequently, we raised our TP to S$2.31 from S$2.15. Our TP is a blend of our PE valuation of S$2.41 • Going forward, we expect the positive momentum from (previously S$2.16 and pegged to average PE multiple of 2017 to flow into 2018, as Olam benefits from the 16.1x) and our DCF valuation of S$2.20 (previously normalisation of the coffee market as supply increases, S$2.15). further growth in volumes across its different business

segments. In addition, we expect its initiatives to improve Maintain HOLD with revised TP of S$2.31 its previously underperforming dairy and tomato businesses to bear fruit. • While we remain positive on the long-term outlook for Olam, with limited upside to our revised TP of S$2.31, we Raising earnings estimates maintain our HOLD recommendation.

• On the back of stronger than expected FY17 earnings, we raised our EBITDA/MT assumptions for the edible nuts segment. In addition, due to the strong volume growth achieved in FY17, we now project volume growth of 3- 5% for FY18-19 versus 2-3% previously. This leads us to raise our FY18-19 core profit by 6%.

Quarterly / Interim Income Statement (S$m) FY Dec 4Q2016 3Q2017 4Q2017 % chg yoy % chg qoq

Revenue 6,106 6,713 7,235 18.5 7.8 Cost of Goods Sold (5,510) (6,214) (6,521) 18.3 4.9 Gross Profit 596 499 715 19.9 43.2 Other Oper. (Exp)/Inc (384) (362) (528) 37.5 45.9 Operating Profit 213 137 187 (12.1) 36.0 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 - - Associates & JV Inc 12.0 1.66 46.5 287.7 nm Net Interest (Exp)/Inc (112) (115) (92.1) 17.8 20.3 Exceptional Gain/(Loss) 17.7 0.64 141 696.3 nm Pre-tax Profit 130 24.2 282 116.9 nm Tax (27.1) 1.21 (26.3) (2.9) nm Minority Interest (0.9) (1.3) 8.97 nm (790.8) Net Profit 88.5 8.12 251 183.7 nm Net profit bef Except. 70.8 7.48 110 55.3 nm EBITDA 331 242 327 (1.3) 34.9 Margins (%) Gross Margins 9.8 7.4 9.9 Opg Profit Margins 3.5 2.0 2.6 Net Profit Margins 1.4 0.1 3.5

Source of all data: Company, DBS Bank

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Company Guide Olam International

Free cash flow

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 Operating Cash flow (before 372 282 195 301 345 316 204 378 402 355 251 362 interest & tax) Changes in working capital (163) (112) (252) (469) (36) 166 (183) (175) (75) 40 873 (4) Cashflow from operations 209 170 (57) (167) 310 481 21 203 327 394 1,125 358 Tax paid (10) (26) (17) (75) (22) (23) (17) 13 (7) (38) (24) (13) Capex/Investments (79) (130) (55) (1,826) (444) (111) (346) (484) (185) (252) (230) 30 Free Cash Flow to Firm (FCFF) 120 15 (129) (2,068) (156) 347 (342) (268) 135 105 870 375 Net interest Paid (178) (73) (112) (116) (128) (68) (120) (32) (176) (76) (144) (68) Free Cash Flow to Equity (FCFE) (57) (58) (242) (2,185) (284) 279 (461) (300) (42) 29 726 307 Source: Olam, DBS Bank

FY17 Segmental performance Volumes ('000 MT) 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 Nuts, Spices & Beans 300.4 431.6 416.7 421.1 370.2 398.3 486.6 436.4 Confectionary & Beverage 533.1 450.3 324.6 379.5 506.2 552.7 469.9 534.7 Food Staples & Packaged Foods 1,792.4 2,110.2 2,558.5 3,035.1 3,146.6 2,981.7 4,292.1 6,488.9 Industrial Raw Materials 339.7 490.0 458.2 374.6 438.7 545.4 550.2 336.0 Total 2,965.6 3,482.1 3,758.0 4,210.3 4,461.7 4,478.1 5,798.8 7,796.0

Revenues (S$m) 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 Nuts, Spices & Beans 766.8 1,004.5 985.6 1,224.1 911.3 1,142.9 1,236.4 1,201.4 Confectionary & Beverage 2,250.7 1,806.0 1,435.9 2,217.8 2,089.3 2,241.0 1,845.7 1,960.7 Food Staples & Packaged Foods 1,201.4 1,383.6 1,497.5 2,028.2 1,975.7 1,971.5 2,420.5 3,399.4 Industrial Raw Materials 542.6 786.6 819.0 636.1 827.7 1,165.1 1,210.0 673.7 Financial Services 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total 4,761.5 4,980.7 4,738.0 6,106.2 5,804.0 6,520.5 6,712.6 7,235.2

EBITDA (S$m) 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 Nuts, Spices & Beans 80.2 99.0 65.0 87.6 138.0 117.0 84.3 99.1 Confectionary & Beverage 105.2 92.3 68.6 141.2 75.0 111.6 62.0 78.9 Food Staples & Packaged Foods 85.7 79.9 60.0 104.6 118.3 99.4 73.5 68.6 Industrial Raw Materials 65.2 40.0 11.8 18.1 62.2 44.3 32.6 58.2 Commodity Financial Services (3.5) 4.4 0.1 (2.6) 5.1 1.2 (9.4) 8.0 Total 332.8 315.6 205.5 348.9 398.6 373.5 243.0 312.8

EBITDA/MT (S$m) 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 Nuts, Spices & Beans 267 229 156 208 373 294 173 227 Confectionary & Beverage 197 205 211 372 148 202 132 148 Food Staples & Packaged Foods 48 38 23 34 38 33 17 11 Industrial Raw Materials 192 82 26 48 142 81 59 173

Source: Olam, DBS Bank

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Company Guide Olam International

Edible nuts EBITDA/MT CRITICAL DATA POINTS TO WATCH 299 301.9 280 272 275 Critical Factors 258.8 244 Maturing of gestating or partially contributing assets. Olam 215.7 currently has S$3.9bn worth of immature assets, comprising 172.5 S$0.3bn of gestating and S$3.6bn of partly contributing assets. 129.4

Assuming these assets mature as planned, Olam could generate 86.3 an additional c.S$0.30-0.42bn of EBITDA in the medium term 43.1

(approximately 23-32% of FY17 EBITDA). 0.0 2015A 2016A 2017A 2018F 2019F

Boost from acquisition of ADM Cocoa. Olam successfully Confec & Bev. EBITDA/MT integrated the US$1.2bn acquisition of ADM Cocoa post its 241 acquisition in 2016. Post this transaction, Olam is now among 246.1 the top 3 global cocoa processors with a c.16% global market 196.9 176 168 173 share in the US$16bn processing market, where demand 159 growth is expected to accelerate from 3% p.a. to 3.4-4.3% in 147.7 the coming decade. In addition, as an integrated player with 98.5 substantial presence in the sourcing and now the processing segment of the cocoa value chain, Olam should be able to 49.2 extract higher profits through greater scale and better 0.0 2015A 2016A 2017A 2018F 2019F procurement over time. Food staples EBITDA/MT Turnaround in dairy and packaged food businesses Olam’s 35.47 34.8 earnings was previously negatively impacted by its dairy and packaged food businesses. The dairy business which has 28.37 26.8 22.4 23.1 undergone several rounds of structuring has since stabilised. 21.3 21.28 While the packaged food business was hurt by devaluation of various African currencies leading to a rise in the cost of various 14.19 imported raw materials and continues to face a volatile currency 7.09 market, the business remains in a strong position relative to its competitors. However, with the passage of time and growing 0.00 consumption in , we believe Olam will be able to 2015A 2016A 2017A 2018F 2019F raise the selling price for its goods over time, to offset higher Industrial EBITDA/MT raw material costs thereby restoring margins. 136 137.2

Normalisation of coffee business. EBITDA for the confectionary 109.7 105 102 102 81.3 & beverage segment fell 20% due to the tough market 82.3 conditions in the coffee business which compressed margins. However, going into with coffee supply expected to normalise 54.9 in 2018, we expect earnings for the coffee business to recover. 27.4

0.0 Partnership with Mitsubishi Corporation. Mitsubishi Corporation 2015A 2016A 2017A 2018F 2019F (MC) had earlier taken a 20% stake in Olam at S$2.75 per share, with Olam also raising S$915m through a share Overall volume growth % placement. Beyond strengthening Olam’s balance sheet and 56.3 56.9 providing firepower for additional acquisitions, the new strategic partnership presents new business opportunities for 43.1

Olam, as it can tap on MC’s global distribution network, 29.4 expertise in areas such as rice farming and milling, as well as 15.3 potentially distributing MC’s packaged food brands in Africa. In 15.6 5.17 3.18 the near term, a JV will also be established in Japan to act as an 1.9 importer and marketer of various agricultural products. -11.9 -10.81 2015A 2016A 2017A 2018F 2019F

Source: Company, DBS Bank

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Company Guide Olam International

Leverage & Asset Turnover (x) Balance Sheet: 2.50 1.2 Gearing is below its target. As at 31 December 2017, on an 1.2 adjusted basis excluding RMI (readily marketable inventories), 2.00 1.1 gearing stood 76.5%. With S$8.5bn of unutilised bank lines, 1.50 readily marketable inventories of S$4.5bn and cash of S$2.0bn, 1.1 1.00 Olam’s remains in a healthy liquidity position. 1.0

0.50 1.0 Share Price Drivers: Range bound near term. While Olam has delivered on its 0.00 0.9 2015A 2016A 2017A 2018F 2019F promise of being positive free cash flow to equity, it is still Gross Debt to Equity (LHS) Asset Turnover (RHS) generating suboptimal ROEs. Hence, we believe investors will Capital Expenditure adopt a wait-and-see approach before reassessing an S$m investment in Olam. Thus, we believe the stock will trade range 2,500.0 bound in the near term, with downside to the share price 2,000.0 protected from Olam’s periodic share buybacks. 1,500.0

Key Risks: 1,000.0

Natural disasters. As an agriculture player, Olam’s volume and 500.0 product prices may be affected by unexpected weather-related 0.0 disruptions and natural disasters. 2015A 2016A 2017A 2018F 2019F Capital Expenditure (-) Foreign currency volatility. As Olam has operations in various ROE (%) emerging countries, it may be negatively impacted by volatility in FX rates. This risk is predominantly related to Olam’s 7.0% packaged foods business in West Africa which imports raw 6.0% materials. 5.0% 4.0% Interest rate risk. At net debt/equity (before adjustments for 3.0% readily marketable inventories) of c.1.5x (end-FY17), Olam is 2.0% vulnerable to significant spikes in interest rates. Nevertheless, 1.0%

Olam should continue to benefit from lower credit spreads in 0.0% 2015A 2016A 2017A 2018F 2019F the near term due to Temasek’s majority ownership. Forward PE Band (x) Company Background (x) 22.8 Olam International is a leading agri-business operating across the value chain in 70 countries, supplying various products 20.8 across 18 platforms to over 23,000 customers worldwide. As a 18.8 +2sd: 19x supply chain manager, Olam is engaged in the sourcing of a 16.8 +1sd: 17.2x wide range of agricultural commodities from the producing Avg: 15.5x 14.8 countries and the processing, warehousing, transporting, -1sd: 13.8x 12.8 shipping, distributing and marketing of these products, right -2sd: 12.1x up to the factory gate of its customers in the destination 10.8 Feb-14 Feb-15 Feb-16 Feb-17 Feb-18 markets. Commodities that Olam is involved in include coffee, cocoa, sugar, rice, cotton, timber, nuts, spices and beans. PB Band (x)

1.9 (x)

1.7

1.5 +2sd: 1.54x +1sd: 1.37x 1.3 Avg: 1.2x 1.1 -1sd: 1.04x

0.9 -2sd: 0.87x

0.7 Feb-14 Feb-15 Feb-16 Feb-17 Feb-18

Source: Company, DBS Bank

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Company Guide Olam International

Cocoa combined ratios Remarks 4.5 A key driver for Olam’s 4.0 Confectionary & Beverage segment is the cocoa 3.5 combined ratio/processing margins post the acquisition 3.0 of ADM Cocoa. 2.5 While cocoa margins were 2.0 elevated last year, this should moderate in 2017. 1.5

1.0

0.5 0.0 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18

Butter Ratio Powder Ratio Combined Ratio

Source: Thomson Reuters, DBS Bank

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Company Guide Olam International

Income Statement (S$m) FY Dec 2015A 2016A 2017A 2018F 2019F

Revenue 19,053 20,587 26,273 27,416 26,445 Cost of Goods Sold (16,974) (18,364) (23,758) (24,649) (23,580) Gross Profit 2,078 2,223 2,515 2,767 2,865 Other Opng (Exp)/Inc (1,207) (1,410) (1,620) (1,740) (1,786) Operating Profit 871 813 895 1,027 1,080 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 5.24 22.2 67.6 69.7 71.8 Net Interest (Exp)/Inc (449) (404) (466) (489) (486) Exceptional Gain/(Loss) (462) 1.64 134 (15.0) (13.5) Growth underpinned by Pre-tax Profit (34.2) 433 631 593 652 recovery in Confectionary & Tax (87.5) (94.3) (79.3) (89.0) (104) Beverage segment and steady Minority Interest 15.3 12.2 29.1 25.2 21.9 volume growth. Preference Dividend (16.5) (33.6) (56.6) (54.6) (54.6) Net Profit (123) 318 524 475 515 Net Profit before Except. 339 316 390 490 528 EBITDA 1,137 1,189 1,343 1,481 1,539 Growth Revenue Gth (%) (3.6) 8.1 27.6 4.4 (3.5) EBITDA Gth (%) 1.0 4.5 13.0 10.3 3.9 Opg Profit Gth (%) (5.5) (6.7) 10.1 14.8 5.1 Net Profit Gth (Pre-ex) (%) 17.0 (6.7) 23.4 25.6 7.8 Margins & Ratio Gross Margins (%) 10.9 10.8 9.6 10.1 10.8 Opg Profit Margin (%) 4.6 3.9 3.4 3.7 4.1 Net Profit Margin (%) (0.6) 1.5 2.0 1.7 1.9 ROAE (%) 7.3 6.0 6.6 7.4 7.7 ROA (%) (0.7) 1.4 2.3 2.1 2.2 ROCE (%) 5.4 3.4 4.1 4.6 4.5 Div Payout Ratio (%) N/A 64.4 40.3 51.6 47.6 Net Interest Cover (x) 1.9 2.0 1.9 2.1 2.2 Source: Company, DBS Bank

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Company Guide Olam International

Quarterly / Interim Income Statement (S$m) FY Dec 4Q2016 1Q2017 2Q2017 3Q2017 4Q2017

Revenue 6,106 5,804 6,521 6,713 7,235 Cost of Goods Sold (5,510) (5,208) (5,815) (6,214) (6,521) Gross Profit 596 596 705 499 715 Other Oper. (Exp)/Inc (384) (287) (444) (362) (528) Operating Profit 213 309 262 137 187 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 12.0 3.02 16.5 1.66 46.5 Net Interest (Exp)/Inc (112) (140) (119) (115) (92.1) Exceptional Gain/(Loss) 17.7 (2.0) (5.7) 0.64 141 Pre-tax Profit 130 170 154 24.2 282 Tax (27.1) (34.0) (20.2) 1.21 (26.3) Minority Interest (0.9) 7.36 14.1 (1.3) 8.97 Net Profit 88.5 131 134 8.12 251 Net profit bef Except. 70.8 133 140 7.48 110 EBITDA 331 401 373 242 327

Growth Revenue Gth (%) 28.9 (4.9) 12.3 2.9 7.8 EBITDA Gth (%) 63.4 21.0 (6.9) (35.0) 34.9 Opg Profit Gth (%) 86.3 45.4 (15.3) (47.5) 36.0 Net Profit Gth (Pre-ex) (%) 1,044.0 87.5 5.4 (94.7) 1,368.7 Margins Gross Margins (%) 9.8 10.3 10.8 7.4 9.9 Opg Profit Margins (%) 3.5 5.3 4.0 2.0 2.6 Net Profit Margins (%) 1.4 2.3 2.1 0.1 3.5

Balance Sheet (S$m) FY Dec 2015A 2016A 2017A 2018F 2019F

Net Fixed Assets 5,058 5,818 6,097 6,221 6,348 Invts in Associates & JVs 899 890 1,071 1,141 1,212 Other LT Assets 1,477 1,588 1,587 1,563 1,540 Cash & ST Invts 2,143 2,144 1,986 2,510 3,063 Inventory 6,692 7,414 6,045 6,213 6,266 Debtors 1,495 1,656 1,902 2,103 2,137 Other Current Assets 3,091 3,958 3,611 3,644 3,655 Total Assets 20,855 23,469 22,299 23,395 24,223

ST Debt 5,512 5,983 4,660 4,869 4,914 Creditor 1,754 2,201 2,184 2,296 2,326 Other Current Liab 1,067 1,457 1,488 1,488 1,488 LT Debt 6,782 7,688 6,928 7,428 7,933 Other LT Liabilities 421 506 417 417 417 Shareholder’s Equity 5,079 5,398 6,444 6,745 7,015 Minority Interests 241 236 177 152 130 Total Cap. & Liab. 20,855 23,469 22,299 23,395 24,223

Non-Cash Wkg. Capital 8,457 9,371 7,885 8,175 8,245 Net Cash/(Debt) (10,151) (11,527) (9,602) (9,786) (9,783) Debtors Turn (avg days) 27.5 27.9 24.7 26.7 29.3 Creditors Turn (avg days) 34.1 40.1 34.2 33.7 36.4 Inventory Turn (avg days) 127.5 142.9 105.1 92.2 98.2 Asset Turnover (x) 1.0 0.9 1.1 1.2 1.1 Decline in gearing due Current Ratio (x) 1.6 1.6 1.6 1.7 1.7 to converstion of Quick Ratio (x) 0.4 0.4 0.5 0.5 0.6 outstanding warrants Net Debt/Equity (X) 1.9 2.0 1.5 1.4 1.4 into equity Net Debt/Equity ex MI (X) 2.0 2.1 1.5 1.5 1.4 Capex to Debt (%) 17.0 9.7 5.6 4.1 3.9 Z-Score (X) 1.7 1.6 1.6 1.6 1.6

Source: Company, DBS Bank

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Company Guide Olam International

Cash Flow Statement (S$m) FY Dec 2015A 2016A 2017A 2018F 2019F

Pre-Tax Profit (34.2) 433 631 593 652 Dep. & Amort. 261 353 381 384 388 Tax Paid (127) (48.4) (82.1) (89.0) (104) Assoc. & JV Inc/(loss) (5.2) (22.2) (67.6) (69.7) (71.8) Chg in Wkg.Cap. (996) (228) 835 (291) (69.7) Other Operating CF 450 131 (38.7) 15.0 13.5 Net Operating CF (451) 620 1,658 543 807 Capital Exp.(net) (2,095) (1,320) (647) (500) (505) Other Invts.(net) 0.0 0.0 0.0 0.0 0.0 Invts in Assoc. & JV 5.37 (65.9) (12.4) 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF 0.01 0.01 22.3 0.0 0.0 Net Investing CF (2,090) (1,385) (637) (500) (505) Div Paid (61.0) (184) (180) (245) (245) Chg in Gross Debt 2,517 832 (1,385) 708 550 Capital Issues 915 5.40 586 71.9 0.0 Other Financing CF (588) 227 (41.4) (54.6) (54.6) Net Financing CF 2,783 880 (1,021) 481 251 Currency Adjustments 55.8 (113) (157) 0.0 0.0 Chg in Cash 297 0.88 (158) 524 553 Opg CFPS (S cts) 20.9 30.8 29.2 25.5 26.8 Free CFPS (S cts) (97.7) (25.4) 35.9 1.33 9.25 Source: Company, DBS Bank

Target Price & Ratings History

2.56 S$ 12-mth Date of Closing 2.46 S.No. T arget Rating Report Price Price 2.36 1: 01 Mar 17 2.06 2.12 HOLD 2: 16 May 17 2.00 2.15 HOLD 2.26

2.16

2.06 2 1 1.96

1.86

1.76 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18

Note : Share price and Target price are adjusted for corporate actions.

Source: DBS Bank Analyst: Mervin SONG, CFA

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Company Guide Olam International

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends

Completed Date: 1 Mar 2018 08:18:21 (SGT) Dissemination Date: 1 Mar 2018 08:38:57 (SGT)

Sources for all charts and tables are DBS Bank unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.

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Company Guide Olam International

DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.

ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), DBSV HK or their subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of 31 Jan 2018.

2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

Compensation for investment banking services: 3. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from Olam International as of 31 Jan 2018.

4. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for Olam International in the past 12 months, as of 31 Jan 2018.

5. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

Directorship/trustee interests: 6. Nihal Vijaya Devadas Kaviratne CBE, a member of DBS Group Holdings Board of Directors, is a Director of Olam International as of 31 Dec 2017

Disclosure of previous investment recommendation produced: 7. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst. 2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

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Company Guide Olam International

RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”). DBS holds Australian Financial Services Licence no. 475946.

DBSVS is exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. DBSVS is regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws.

Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report has been prepared by a person(s) who is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities in Hong Kong pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Vickers Hong Kong Limited, a licensed corporation licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). For any query regarding the materials herein, please contact Paul Yong (CE. No. ASE988) at [email protected].

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.

Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd.

United This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore. Kingdom This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom.

In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.

Dubai This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, International Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Financial Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for Centre professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

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Company Guide Olam International

United Arab This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined Emirates in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent.

United States This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, jurisdictions professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

DBS Regional Research Offices

HONG KONG MALAYSIA SINGAPORE DBS Vickers (Hong Kong) Ltd AllianceDBS Research Sdn Bhd DBS Bank Ltd Contact: Paul Yong Contact: Wong Ming Tek (128540 U) Contact: Janice Chua 18th Floor Man Yee Building 19th Floor, Menara Multi-Purpose, 12 Marina Boulevard, 68 Des Voeux Road Central Capital Square, Marina Bay Financial Centre Tower 3 Central, Hong Kong 8 Jalan Munshi Abdullah 50100 Singapore 018982 Tel: 65 6878 8888 Kuala Lumpur, Malaysia. Tel: 65 6878 8888 Fax: 65 65353 418 Tel.: 603 2604 3333 Fax: 65 65353 418 e-mail: [email protected] Fax: 603 2604 3921 e-mail: [email protected] Participant of the Stock Exchange of Hong Kong e-mail: [email protected] Company Regn. No. 196800306E

INDONESIA THAILAND PT DBS Vickers Sekuritas (Indonesia) DBS Vickers Securities (Thailand) Co Ltd Contact: Maynard Priajaya Arif Contact: Chanpen Sirithanarattanakul DBS Bank Tower 989 Siam Piwat Tower Building, Ciputra World 1, 32/F 9th, 14th-15th Floor Jl. Prof. Dr. Satrio Kav. 3-5 Rama 1 Road, Pathumwan, Jakarta 12940, Indonesia Bangkok Thailand 10330 Tel: 62 21 3003 4900 Tel. 66 2 857 7831 Fax: 6221 3003 4943 Fax: 66 2 658 1269 e-mail: [email protected] e-mail: [email protected] Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand

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