Singapore Company Guide Olam International
Version 4 | Bloomberg: OLAM SP | Reuters: OLAM.SI Refer to important disclosures at the end of this report
DBS Group Research . Equity 15 Nov 2016
HOLD In holding pattern for now Last Traded Price ( 14 Nov 2016): S$2.06 (STI : 2,787.27) Investors on the sideline for now. We maintain our HOLD call on Price Target 12-mth: S$1.94 (-6% downside) (Prev S$1.58) Olam International (Olam) with a revised TP of S$1.94. While Olam appears to have successfully integrated the US$1.2bn Potential Catalyst: Delivery of free cash flow targets and successful acquisition of ADM Cocoa, we have yet to see consistent integration of ADM Cocoa acquisition delivery of positive free cash flow and earnings growth. In Where we differ: Below consensus on lower sales addition, with return on equity (ROE) still suboptimal, we believe Analyst Mervin SONG CFA +65 6682 3715 [email protected] a re-rating beyond 15x PE multiple is unlikely, and Olam’s share price is likely to trade range bound in the near term. However, What’s New with Olam periodically conducting share buybacks, risk of a 9M16 core profit of S$245m (-8% y-o-y) below significant fall in its share price is mitigated. expectations Significant medium-term upside on successful execution. While ADM Cocoa successfully integrated with tailwinds we are cautious on Olam’s near term share price performance, from elevated cocoa processing margins there is significant upside over the medium term if the company successfully executes on its plans. Currently, Olam has S$4.9bn Maximising earnings of existing assets is the next worth of immature assets which, on maturity, could generate an step additional c.S$0.6-1.1bn of EBITDA. This is on top of any earnings from new investment opportunities that Olam undertakes with its new partner, Mitsubishi Corporation, which took a 20% interest in the group. All these factors may enable Price Relative Olam’s share price to re-rate closer to S$2.23 and S$2.75, price levels at which Temasek and Mitsubishi acquired their most recent equity interests in Olam.
Low free float. Given Olam’s small free float of c.20% and high gearing relative to other listed companies in Singapore, we believe the majority of investors may continue to shun the stock
in the near term.
Valuation: Forecasts and Valuation FY Dec (S$ m) 2014A 2015A 2016F 2017F We raised our TP, which is an average of our PE and DCF Revenue 19,772 19,053 20,183 20,195 valuations, to S$1.94 from S$1.58. We lifted our PE valuation EBITDA 1,126 1,137 1,157 1,249 to S$1.83 from S$1.58 as we based our target PE at 10.3x, Pre-tax Profit 726 13.5 377 470 which is pegged to -0.5SD forward PE from -2SD previously, to Net Profit 574 (88.3) 292 328 better reflect the reduced earnings risk following the successful Net Pft (Pre Ex.) 290 334 324 357 integration of ADM Cocoa. However, we trimmed our DCF Net Pft Gth (Pre-ex) (%) 4.8 15.2 (2.8) 10.2 valuation to S$2.05 from S$2.10 after lowering our earnings EPS (S cts) 23.7 (3.4) 10.6 11.9 EPS Pre Ex. (S cts) 11.9 12.8 11.8 13.0 estimates. EPS Gth Pre Ex (%) 3 7 (8) 10 Key Risks to Our View: Diluted EPS (S cts) 20.8 (3.0) 8.33 9.36 The key risk to our neutral stance is a faster than expected Net DPS (S cts) 6.00 6.00 4.13 3.66 BV Per Share (S cts) 161 176 183 194 delivery of earnings from Olam’s gestating/immature assets. PE (X) 8.7 nm 19.4 17.3 On the downside, with gearing in excess of 1.5x, Olam’s PE Pre Ex. (X) 17.3 16.1 17.5 15.9 earnings are vulnerable to a significant rise in interest rates. P/Cash Flow (X) nm nm 5.9 7.3 EV/EBITDA (X) 11.9 14.1 14.3 13.1 At A Glance Net Div Yield (%) 2.9 2.9 2.0 1.8 Issued Capital (m shrs) 2,727 P/Book Value (X) 1.3 1.2 1.1 1.1 Mkt. Cap (S$m/US$m) 5,618 / 3,970 Net Debt/Equity (X) 1.9 1.9 1.6 1.5 Major Shareholders (%) ROAE (%) 7.3 7.2 5.9 5.9 Temasek Capital 52.2 Mitsubishi Corporation 20.0 Earnings Rev (%): (18) (24) Orbis Group 7.8 Consensus EPS (S cts): 13.5 14.0 Free Float (%) 20.0 Other Broker Recs: B: 1 S: 1 H: 2 3m Avg. Daily Val (US$m) 1.0 Source of all data on this page: Company, DBS Bank, Bloomberg ICB Industry : Consumer Goods / Food Producers Finance L.P
ASIAN INSIGHTS VICKERS SECURITIES ed: JS/ sa: JC, PY Company Guide
Olam International
WHAT’S NEW Gearing at manageable levels. Consistent earnings growth the next step Net debt (excluding readily marketable inventories) at end-Sep16, stood at 1.04x following the seasonal peak in 9M16 core results below expectations 2Q16 of 2x. 3Q16 core profit (excluding exceptional, biological losses Meanwhile, headline net debt/equity was 1.9x which is and after perpetual dividends) came in at S$6.2m, (-73% below Olam’s target of below 2x. y-o-y) taking 9M16 core profit to S$245.3m (-8% y-o-y), Olam’s liquidity position also remains healthy with which represented 61% of our original FY16F profit S$6.7bn of unutilised bank lines. forecast.
The lower-than-expected result was mainly attributed to Free cashflows still negative weaker contribution from the edible nuts segment and Free cashflow to firm (FCFF) remains negative at – softer performance from the cocoa supply chain business. S$342m and –S$150m for 3Q16 and 9M16 respectively
despite operating cashflows being positive. Boost from ADM Cocoa acquisition FCFF was negatively impacted by Olam’s decision to The key performance driver over the past nine months conduct a few bolt-on acquisitions year to date. These has been the acquisition of ADM Cocoa last year. This led include the purchase of BUA group’s wheat milling assets 3Q16 and 9M16 EBITDA for Confectionery & Beverage for US$275m, US$100m for Brook’s peanuts business to jump 63% and 44% y-o-y respectively. The results we and US$150m for the animal feed business in Nigeria. understand would have been better if not for lower While the acquisitions were strategic in nature, supply chain volumes given the impact of adverse strengthening Olam’s competitive position, some weather in West Africa on cocoa bean supply and quality. investors may be disappointed with the potential delay in Overall volumes however, rose 7.5% mainly due to achieving a positive FCFF. consolidation of ADM Cocoa’s operations.
Meanwhile, Edible Nuts performance was weaker than expected with 3Q16 and 9M16 EBITDA dropping 28% FY16-17F core earnings lowered by 10-20% To account for the weaker than expected results, we and 25% respectively. While cashew, peanut, hazelnut, lowered our core earnings by 10-20% as we reduced our sesame and US dehydrated vegetables sub-segments margin and volumes assumptions primarily for the edible improved y-o-y, the segment was impacted by lower nuts and cocoa supply chain businesses. almond prices which has since seen some recovery, and
weaker tomato processing margins on account of TP revised to S$1.94 sluggish demand, depressed market prices and higher Despite reducing our earnings estimates, we raised our raw material prices. TP which is an average of our PE and DCF valuations to The Food Staples business has had a good year thus far, S$1.94 from S$1.58. with 3Q16 and 9M16 EBITDA rising 93% and 38% Our PE valuation was increased to S$1.83 from S$1.58 as respectively. This strong result can be largely attributed to we based our target PE at 10.3x, which is pegged to - the acquisition of BUA Group’s wheat milling assets in 0.5SD forward PE from -2SD previously, to better reflect Nigeria, and increased volumes from the grains the reduced earnings risk following the successful origination and export operations. In addition, the dairy integration of ADM Cocoa, as well as Olam’s periodic farming operations in Russia and Uruguay benefited from support of its share price through share buybacks. previous restructuring efforts. Notwithstanding, the However, we trimmed our DCF valuation to S$2.05 from packaged food business underperformed on the back of S$2.10 on the back of our lower earnings projections. continued currency volatility. Margins were under
pressure due to the inability to immediately pass on the Cocoa margins still elevated higher input prices as a consequence of the depreciation We expect Olam’s earnings to continue to be supported of various West African currencies. by elevated cocoa processing margins (albeit lower than For the Industrial Raw Materials segment, 3Q16 and that achieved earlier this year), a recovery in cocoa 9M16 EBITDA fell 27% and 10% respectively, as cotton volumes on the back of a better crop in the upcoming margins were under pressure. This was partially offset by season, and extraction of costs synergies from the ADM higher volumes and increased contribution from the Cocoa acquisition. Special Economic Zone (SEZ) in Gabon. In addition, almond prices which were a drag to the Edible Nuts division have since recovered, which should aid the
divisions earnings going forward.
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Page 2 Company Guide Olam International
Beyond this, the next step for Olam is maximising its Maintain HOLD existing assets which are yet to fully mature. It currently While we expect Olam’s earnings to be on an uptrend has c.S$4.9bn worth of assets still gestating or only partly next year, with return on equity (ROE) still suboptimal, we believe a re-rating beyond 15x PE multiple is difficult. contributing. Thus, we believe Olam’s share price will be range bound in the near term and maintain our HOLD recommendation with a revised TP of S$1.94.
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 2Q2016 3Q2016 % chg yoy % chg qoq
Revenue 4,471 4,981 4,738 6.0 (4.9) Cost of Goods Sold (3,959) (4,442) (4,256) 7.5 (4.2) Gross Profit 512 539 482 (6.0) (10.7) Other Oper. (Exp)/Inc (373) (311) (367) (1.4) 18.1 Operating Profit 139 228 114 (18.2) (50.0) Other Non Opg (Exp)/Inc 0.0 0.0 0.0 nm nm Associates & JV Inc (4.8) 4.68 6.05 nm 29.2 Net Interest (Exp)/Inc (103) (91.6) (100) 2.7 (9.6) Exceptional Gain/(Loss) (4.7) (1.1) 2.82 nm nm Pre-tax Profit 26.8 140 22.5 (16.0) (83.9) Tax (10.9) (28.8) (7.5) (31.3) (74.0) Minority Interest 6.52 3.42 5.47 (16.2) 60.0 Net Profit 18.3 111 9.00 (50.8) (91.9) Net profit bef Except. 23.0 112 6.19 (73.1) (94.5) EBITDA 192 317 203 5.4 (36.0)
Margins (%) Gross Margins 11.5 10.8 10.2 Opg Profit Margins 3.1 4.6 2.4 Net Profit Margins 0.4 2.2 0.2 Source of all data: Company, DBS Bank
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Olam International
3Q16 Segmental performance 3Q15 2Q16 3Q16 % Chg % Chg Volumes ('000 MT) YoY QoQ Nuts, Spices & Beans 331.2 431.6 416.7 25.8 -3.5 Confectionary & Beverage 326.0 450.3 324.6 -0.4 -27.9 Food Staples & Packaged Foods 2,223.7 2,110.2 2,558.5 15.1 21.2 Industrial Raw Materials 346.8 490.0 458.2 32.1 -6.5 Total 3,227.7 3,482.1 3,758.0 16.4 7.9 % Chg % Chg Revenues (S$m) 3Q15 2Q16 3Q16 YoY QoQ Nuts, Spices & Beans 1,140.9 1,004.5 985.6 -13.6 -1.9 Confectionary & Beverage 1,361.3 1,806.0 1,435.9 5.5 -20.5 Food Staples & Packaged Foods 1,352.1 1,383.6 1,497.5 10.8 8.2 Industrial Raw Materials 616.8 786.6 819.0 32.8 4.1 Commodity Financial Services 0.3 0.0 0.0 NM NM Total 4,471.4 4,980.7 4,738.0 6.0 -4.9 % Chg % Chg EBITDA (S$m) 3Q15 2Q16 3Q16 YoY QoQ Nuts, Spices & Beans 90.3 99.0 65.0 -28.0 -34.3 Confectionary & Beverage 42.2 92.3 68.6 62.6 -25.7 Food Staples & Packaged Foods 31.1 79.9 60.0 92.9 -24.9 Industrial Raw Materials 16.1 40.0 11.8 -26.7 -70.5 Commodity Financial Services 11.2 4.4 0.1 -99.1 -97.7 Total 190.9 315.6 205.5 7.6 -34.9 % Chg % Chg EBITDA/MT (S$m) 3Q15 2Q16 3Q16 YoY QoQ Nuts, Spices & Beans 273 229 156 -42.8 -32.0 Confectionary & Beverage 129 205 211 63.3 3.1 Food Staples & Packaged Foods 14 38 23 67.7 -38.1 Industrial Raw Materials 46 82 26 -44.5 -68.5 Source: Olam, DBS Bank
Free cash flow 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 Operating Cash flow (before interest & tax) 372.1 282.4 195.3 301.0 345.4 315.9 203.8 Changes in working capital (162.7) (112.3) (252.4) (468.5) (35.5) 165.5 (182.5) Cashflow from operations 209.4 170.1 (57.1) (167.5) 309.9 481.4 21.3 Tax paid (10.2) (25.7) (17.2) (74.7) (21.6) (23.1) (17.1) Capex/Investments (79.0) (129.5) (55.0) (1,826.2) (444.3) (111.1) (345.9) Free Cash Flow to Firm (FCFF) 120.2 14.9 (129.3) (2,068.4) (156.0) 347.2 (341.7) Net interest Paid (177.6) (72.5) (112.2) (116.1) (127.8) (68.4) (119.5) Free Cash Flow to Equity (FCFE) (57.4) (57.6) (241.5) (2,184.5) (283.8) 278.8 (461.2) Source: Olam, DBS Bank
Elevated cocoa combined ratios supportive of Olam’s earnings 4.5 4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5 0.0 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16
Butter Ratio Powder Ratio Combined Ratio Source: Thomson Reuters, DBS Bank
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Page 4 Company Guide Olam International
Edible nuts EBITDA/MT
CRITICAL DATA POINTS TO WATCH
Earnings Drivers: Maturing of gestating or partially contributing assets. Olam currently has S$4.9bn worth of immature assets, comprising S$0.6bn of gestating and S$4.3bn of partly contributing assets. Should these assets mature as planned, Olam could generate an additional c.S$0.6-1.1bn of EBITDA in the medium term (approximately 60-100% of FY15/16F
EBITDA). Confec & Bev. EBITDA/MT Boost from acquisition of ADM Cocoa. Olam completed the US$1.2bn acquisition of ADM Cocoa late last year. Post this transaction, Olam is among the top 3 global cocoa processors with a c.16% global market share in the US$16bn processing market, where demand growth is expected to accelerate from 3% p.a. to 3.4-4.3% in the coming decade. In addition, as an integrated player with substantial presence in the sourcing and now the processing segment of the cocoa value chain, Olam should be able to extract higher profits through greater scale and better procurement. Additional upside would also come from the planned US$35-40m worth of synergies by the second Food staples EBITDA/MT year of ownership.
Turnaround in dairy and packaged food businesses Olam’s earnings was previously negatively impacted by its dairy and packaged food businesses. The dairy business which has undergone several rounds of structuring has since stabilised. While the packaged food business was hurt by devaluation of various African currencies leading to a rise in the cost of various imported raw materials and continues to face a volatile currency market, the business remains in a strong position relative to its competitors. Nevertheless, with the passage of time and Industrial EBITDA/MT growing consumption in West Africa, we believe Olam will be able to raise the selling price for its goods, to offset higher raw material costs thereby restoring margins.
New partnership with Mitsubishi Corporation. Mitsubishi Corporation (MC) recently took a 20% stake in Olam at S$2.75 per share, with Olam also raising S$915m through a share placement. Beyond strengthening Olam’s balance sheet and providing firepower for additional acquisitions, the new strategic partnership presents new business opportunities for Olam, as it can tap on MC’s global distribution network, Overall volume growth % expertise in areas such as rice farming and milling, as well as potentially distributing MC’s packaged food brands in Africa. In the near term, a JV will also be established in Japan to act as an importer and marketer of various agricultural products.
Source: Company, DBS Bank
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Olam International
Leverage & Asset Turnover (x) Balance Sheet: Gearing is below its target As at September 2016, on an adjusted basis excluding RMI (readily marketable inventories), gearing stood at 1.04x. With S$6.7bn of unutilised bank lines, Olam remains in a comfortable financial position.
Share Price Drivers: Range bound near term. With still inconsistent generation of positive free cash flow, suboptimal ROE’s and weaker than expected 9M16 results, we believe investors will adopt a wait- and-see approach before reassessing an investment in Olam. Thus, we believe the stock will trade range bound in the near Capital Expenditure term, with downside to the share price protected from Olam’s periodic share buybacks.
Key Risks: Natural disasters. As an agriculture player, Olam’s volume and product prices may be affected by unexpected weather-related disruptions and natural disasters.
Foreign currency volatility. As Olam has operations in various emerging countries, it may be negatively impacted by volatility in FX rates. This risk is predominantly related to Olam’s ROE (%) packaged foods business in West Africa which imports raw materials.
Interest rate risk. At net debt/equity (before adjustments for readily marketable inventories) of c.1.6x (end-CY16F), Olam is vulnerable to significant spikes in interest rates. Nevertheless, Olam should continue to benefit from lower credit spreads in the near term due to Temasek’s majority ownership.
Company Background Forward PE Band (x) Olam International is a leading agri-business operating across (x) the value chain in 65 countries, supplying various products 25.0 across 16 platforms to over 13,800 customers worldwide. As a +2sd: 22x supply chain manager, Olam is engaged in the sourcing of a 20.0 +1sd: 18.8.0x wide range of agricultural commodities from the producing Avg: 15.7x 15.0 countries and the processing, warehousing, transporting, -1sd: 12.6x shipping, distributing and marketing of these products, right 10.0 -2sd: 9.4x up to the factory gate of its customers in the destination markets. Commodities that Olam is involved in include coffee, 5.0 cocoa, sugar, rice, cotton, timber, nuts, spices and beans. Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 PB Band (x) (x) 3.0 +2sd: 2.5x
2.0 +1sd: 2x
Avg: 1.5x
1.0 -1sd: 1x
-2sd: 0.5x
0.0 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Source: Company, DBS Bank
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Key Assumptions FY Dec 2013A 2014A 2015A 2016F 2017F
Edible nuts EBITDA/MT 209 220 280 225 234 Confec & Bev. EBITDA/MT 169 194 168 200 221 Food staples EBITDA/MT 36.2 31.5 26.8 33.2 32.6 Industrial EBITDA/MT 119 127 136 88.3 88.3 Overall volume growth % 11.6 (9.8) (10.8) 11.1 7.93
Segmental Breakdown FY Dec 2013A 2014A 2015A 2016F 2017F
Revenues (S$m) Edible nuts, spices & 3,465 3,692 4,227 3,646 3,548 Confectionary & beverage 4,968 5,722 6,860 7,654 7,131 Food staples and 7,406 7,187 5,391 5,762 6,394 Industrial raw materials 4,200 3,171 2,575 3,122 3,122 Others 1.45 0.03 0.0 0.0 0.0 Total 20,040 19,772 19,053 20,183 20,195 EBITDA (S$m) Edible nuts, spices & 347 335 394 316 329 Confectionary & beverage 269 278 284 378 430 Food staples and 378 295 212 288 316 Industrial raw materials 219 216 185 150 150 Growth in the Others (60.3) 1.54 62.4 25.0 23.0 Confectionery & Total 1,152 1,126 1,137 1,157 1,249 Beverage segment due to the acquisition of EBITDA Margins (%) Edible nuts, spices & 10.0 9.1 9.3 8.7 9.3 ADM Cocoa Confectionary & beverage 5.4 4.9 4.1 4.9 6.0 Food staples and 5.1 4.1 3.9 5.0 4.9 Industrial raw materials 5.2 6.8 7.2 4.8 4.8 Others (4,169.8) 4,536.5 (271,447.8) N/A N/A Total 5.7 5.7 6.0 5.7 6.2
Income Statement (S$m) FY Dec 2013A 2014A 2015A 2016F 2017F
Revenue 20,040 19,772 19,053 20,183 20,195 Cost of Goods Sold (18,082) (17,642) (16,974) (18,035) (17,923) Gross Profit 1,958 2,131 2,078 2,148 2,271 Other Opng (Exp)/Inc (1,053) (1,208) (1,199) (1,325) (1,366) Operating Profit 905 922 879 823 905 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 20.2 (5.9) 5.24 5.24 5.24 Net Interest (Exp)/Inc (502) (475) (449) (418) (411) Exceptional Gain/(Loss) 50.2 285 (422) (32.4) (29.2) Pre-tax Profit 474 726 13.5 377 470 Tax (102) (96.1) (101) (64.2) (79.9) Minority Interest (26.1) (39.3) 15.2 12.0 (8.0) Preference Dividend (19.3) (16.8) (16.5) (33.3) (54.0) Net Profit 327 574 (88.3) 292 328 Net Profit before Except. 276 290 334 324 357 EBITDA 1,152 1,126 1,137 1,157 1,249 Growth Revenue Gth (%) 5.7 (1.3) (3.6) 5.9 0.1 EBITDA Gth (%) 19.1 (2.2) 1.0 1.8 7.9 Opg Profit Gth (%) 18.4 1.8 (4.7) (6.4) 10.0 Net Profit Gth (Pre-ex) (%) 2.6 4.8 15.2 (2.8) 10.2 Margins & Ratio Gross Margins (%) 9.8 10.8 10.9 10.6 11.2 Opg Profit Margin (%) 4.5 4.7 4.6 4.1 4.5 Net Profit Margin (%) 1.6 2.9 (0.5) 1.4 1.6 ROAE (%) 7.7 7.3 7.2 5.9 5.9 ROA (%) 2.2 3.6 (0.5) 1.4 1.4 ROCE (%) 5.5 5.8 (35.1) 3.6 3.8 Div Payout Ratio (%) 54.9 25.5 N/A 38.7 30.7 Net Interest Cover (x) 1.8 1.9 2.0 2.0 2.2 Source: Company, DBS Bank
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Olam International
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016
Revenue 4,471 5,448 4,761 4,981 4,738 Cost of Goods Sold (3,959) (4,960) (4,155) (4,442) (4,256) Gross Profit 512 489 606 539 482 Other Oper. (Exp)/Inc (373) (284) (348) (311) (367) Operating Profit 139 204 258 228 114 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc (4.8) 14.9 (0.6) 4.68 6.05 Net Interest (Exp)/Inc (103) (121) (99.4) (91.6) (100) Exceptional Gain/(Loss) (4.7) (292) (17.8) (1.1) 2.82 Pre-tax Profit 26.8 (194) 140 140 22.5 Tax (10.9) (28.0) (31.0) (28.8) (7.5) Minority Interest 6.52 1.07 4.23 3.42 5.47 Net Profit 18.3 (225) 109 111 9.00 Net profit bef Except. 23.0 66.9 127 112 6.19 EBITDA 192 296 338 317 203
Growth Revenue Gth (%) (7.1) 21.8 (12.6) 4.6 (4.9) EBITDA Gth (%) (36.8) 53.9 14.2 (6.3) (36.0) Opg Profit Gth (%) (40.4) 46.6 26.3 (11.6) (50.0) Net Profit Gth (Pre-ex) (%) (77.9) 190.4 90.2 (12.0) (94.5) Margins Gross Margins (%) 11.5 9.0 12.7 10.8 10.2 Opg Profit Margins (%) 3.1 3.8 5.4 4.6 2.4 Net Profit Margins (%) 0.4 (4.1) 2.3 2.2 0.2
Balance Sheet (S$m) FY Dec 2013A 2014A 2015A 2016F 2017F
Net Fixed Assets 4,490 4,268 4,753 5,476 5,698 Invts in Associates & JVs 559 808 899 904 909 Other LT Assets 735 1,070 1,698 1,675 1,651 Cash & ST Invts 1,236 1,846 2,143 3,340 4,028 Inventory 4,467 4,988 6,692 6,226 6,138 Debtors 2,240 1,374 1,495 1,659 1,660 Other Current Assets 1,795 2,288 3,113 3,040 3,085 Total Assets 15,523 16,642 20,792 22,319 23,170
ST Debt 3,168 2,624 5,512 5,280 5,256 Creditor 1,494 1,373 1,754 1,680 1,670 Other Current Liab 775 875 1,067 1,067 1,067 LT Debt 5,945 7,217 6,782 7,830 8,386 Other LT Liabilities 239 260 319 319 319 Shareholder’s Equity 3,760 4,167 5,119 5,915 6,237 Minority Interests 142 126 241 229 237 Total Cap. & Liab. 15,523 16,642 20,792 22,319 23,170
Non-Cash Wkg. Capital 6,233 6,402 8,479 8,178 8,147 Net Cash/(Debt) (7,877) (7,995) (10,151) (9,770) (9,613) Debtors Turn (avg days) 35.9 33.4 27.5 28.5 30.0 Creditors Turn (avg days) 24.5 30.0 34.1 35.4 34.8 Inventory Turn (avg days) 95.8 99.0 127.5 133.1 128.3 Reduction in gearing as Asset Turnover (x) 1.3 1.2 1.0 0.9 0.9 Olam receives proceeds Current Ratio (x) 1.8 2.2 1.6 1.8 1.9 from the exercise of Quick Ratio (x) 0.6 0.7 0.4 0.6 0.7 outstanding warrants Net Debt/Equity (X) 2.0 1.9 1.9 1.6 1.5 Net Debt/Equity ex MI (X) 2.1 1.9 2.0 1.7 1.5 Capex to Debt (%) 9.0 0.8 16.9 8.0 4.1 Z-Score (X) 2.2 2.1 1.7 1.8 1.8 Source: Company, DBS Bank
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Cash Flow Statement (S$m) FY Dec 2013A 2014A 2015A 2016F 2017F
Pre-Tax Profit 474 726 13.5 377 470 Dep. & Amort. 226 210 253 329 338 Tax Paid (64.3) (65.6) (127) (64.2) (79.9) Assoc. & JV Inc/(loss) (20.2) 5.86 (5.2) (5.2) (5.2) Chg in Wkg.Cap. (98.2) (829) (996) 301 31.2 Other Operating CF (19.6) (143) 410 20.0 18.0 Net Operating CF 497 (95.0) (451) 958 772 Capital Exp.(net) (819) (81.7) (2,084) (1,049) (556) Other Invts.(net) (13.5) (7.8) (16.4) 0.0 0.0 Invts in Assoc. & JV 20.5 94.2 5.37 0.0 0.0 Acquisition of ADM Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Cocoa and MMI Cocoa Other Investing CF (5.5) 8.07 5.14 0.0 0.0 Net Investing CF (818) 12.7 (2,090) (1,049) (556) Div Paid (96.9) (190) (61.0) (165) (98.5) Chg in Gross Debt 583 636 2,517 816 531 Capital Issues 0.0 90.5 915 10.2 92.7 Other Financing CF (28.8) 114 (588) 626 (54.0) Net Financing CF 458 651 2,782 1,287 472 Currency Adjustments 6.79 41.3 55.8 0.0 0.0 Chg in Cash 144 610 297 1,197 689 Opg CFPS (S cts) 24.9 30.2 20.9 23.9 26.9 Free CFPS (S cts) (13.5) (7.3) (97.2) (3.3) 7.89 Source: Company, DBS Bank
Target Price & Ratings History
Source: DBS Bank Analyst: Mervin SONG CFA
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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: 15 Nov 2016 07:58:01 Dissemination Date: 15 Nov 2016 09:07:33
GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte 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”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document 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 and 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.
DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-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.
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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 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. As of 15 Nov 2016, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). 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.
COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of 31 Oct 2016. 2. DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.
Compensation for investment banking services:
3. DBS Bank Ltd, DBSVS, 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 Oct 2016.
4. DBS Bank Ltd, 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 Oct 2016.
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 3 Aug 2016.
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”), both of which are 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. Both DBS and DBSVS are 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 is being distributed in Hong Kong by or on behalf of, and is attributable to DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission and/or by DBS Bank (Hong Kong) Limited which is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission. Where this publication relates to a research report, unless otherwise stated in the research report(s), DBS Bank (Hong Kong) Limited is not the issuer of the research report(s). This publication including any research report(s) is/are distributed on the express understanding that, whilst the information contained within is believed to be reliable, the information has not been independently verified by DBS Bank (Hong Kong) Limited. This report is intended for distribution in Hong Kong only to professional investors (as defined in the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) and any rules promulgated thereunder.)
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 Securities Indonesia.
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Olam International
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. Research reports distributed are only intended for institutional clients only and no other person may act upon it.
United Kingdom This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore.
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 in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.
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 jurisdictions In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.
DBS Bank Ltd 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888 e-mail: [email protected] Company Regn. No. 196800306E
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