Olam Support and Resistance Chart

Olam is committed to responsible growth. They ensure profitable growth is achieved in an ethical, socially responsible and environmentally sustainable manner. Only by ensuring this is an integral part of the business model can they deliver long-term value for all stakeholders. Olam is revolutionising seed to shelf supply chains through the Olam Sustainability Standard. Each step of Olam’s value chain is being examined to identify and implement measures to sustainably deliver products across all of its geographies by 2020.

Company news

Aspial and Fragrance entered into a 50:50 JV to acquire ~29.3% stake in LCD Global Investments at S$0.33/share if the latter defers its previously announced rights issue, or S$0.30/share otherwise.

Olam Australia announced the sale of Western Wool Marketing to a South Australian-based company, Quality Wool.

Keppel Reit announced that nine of its 11 completed office towers in Singapore and Australia have achieved 100% committed occupancy.

LifeBrandz received SGX approval for its proposed placement of 500m new shares at S$0.0036/share.

Aztech Group's wholly-owned subsidiary has changed its name from Aztech Electronics to AZ Marine Shipping, and shifted its core business to ship brokering services.

Olam International valuations look stretched

FY14 results below our forecast
Olam posted a weak set of 4QFY14 results, with revenue down 11.4% YoY at S$5757.7m, after volume shipped fell 18.6% to 3498.3k MT. Reported net profit slipped 43.9% to S$31.8m; although Olam notes that operational PATMI was up 1.5% at S$48.5m. However, we note that core earnings of S$31.7m (excluding exceptionals and fair-value gains) was down 7.8%. FY14 revenue fell 6.6% to S$19421.8m, or about 15.7% below our forecast, while reported net profit jumped 67.8% to S$608.5m; though Olam noted that operational PATMI was actually down 6.7% at S$325.4m. We estimate that core earnings would have come in around S$364.1m, but still about 8.4% below our number. Olam declared a final dividend of S$0.05/share as well as a “special silver jubilee” dividend of S$0.025, versus a final of S$0.04 last year.

Still committed to its FY14-16
Strategy Plan Olam stressed that the fall in volume shipment was intentional and also part of its strategic plan to sharpen its focus on relevant businesses. For FY15, it expects to release ~S$313.1m of cash, generate a P/L gain of S$22.4m, and add S$118.8m to its capital reserves from divestment initiatives already announced but pending completion. It has also slowed its pace of investments, and it expects to spend around S$500m in FY15 on capex, about the same as FY14, although it does not rule out additional spending if there are very good acquisition opportunities.

Still not FCFF positive yet
However, Olam did not quite manage to turn FCFF positive by end FY14 as guided; although it did end with a slight S$28.7m deficit versus –S$355.7m in FY14. We note that FCFE remains a large S$504.6m deficit due to its high interest burden (but Olam is confident of bringing it down somewhat).

Higher S$2.38 FV; run-up overdone
We have revised our FY15 estimates and introduced FY16 forecasts. We are also improving our valuation peg from 10x to 12.5x (5-year average), which raises our fair value from S$1.85 to S$2.38 (still based on FY15F EPS). However, given the steep run-up, we think that current valuations appear slightly stretched, hence we maintain our SELL rating.

Olam to remain listed

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

Olam investing US$61.0 million to establish a new cocoa

Olam International Limited announced that it will be investing US$61.0 million to establish a new cocoa processing facility in Indonesia.

The project enables Olam to leverage the strength of its Indonesian cocoa sourcing network and participate in the growth of Asian cocoa consumption.

Temasek privatising Olam

What’s New
Olam announced this morning that Temasek Holdings is making a cash offer for all outstanding Olam shares at SGD2.23/share. 2016 convertible bond will also be bought back at the same price (SGD2.23/share after CB conversion). This represents a 12% premium over the stock’s last closing price and a 32% premium over the average price of the past three months.

What’s Our View
The offer price values Olam at 15.7x FY14 P/E and 1.4x FY14 P/BV, which we think is very attractive when compared with its peers Noble and Wilmar, which are only trading at around 1x FY14 BVPS.

As Olam has scaled back its capex plan significantly for the next three years, we believe the company is less hungry for capital now. Although management said the current intention is to maintain Olam’s listing status, we believe there is a high chance that Temasek may delist Olam if the

Olam bearish break suggests more downside ahead

Key support violated. Olam International is likely to see further correction after initiating a strong bearish break below its $1.60 key horizontal support via a gap-down on heavy trading volume yesterday.

Indicator is bearish. The MACD has just plunged below the centerline, suggesting that the downside momentum is accelerating.

Next key support at $1.40. The counter could possibly slip further towards the next key base at $1.40 (key trough) in the weeks ahead.

Immediate resistance at

Olam debt level rising; Rebuilding confidence.

Below expectations. We believe Olam 2QJuneFY13 results were slightly below market expectation, but in-line with ours. Net profit excluding exceptional gains was up just 6% yoy to SGD136.1m, bringing 1HFY13 to SGD179.2m. Stripping out biological gains, 1HFY13 net profit comes to SGD147m, against full-year consensus of SGD347m.

Volumes up, but core earnings weak. Similar to the previous quarter, volume growth continues to be strong this year, up 54% yoy for the quarter. However, it is notable that most of the growth came from the Food Staples and Packaged food segment; we understand this is primarily on growth from the grains business, which has big volumes, but structurally lower net contribution per tonne. Net contribution was up 19% yoy for the quarter, contributed broadly across the segments.

Debt and overhead cost continue to bite. We believe the weakness in profit continues to stem from the increasing debt and overhead loads. Employee benefit expenses for the quarter were up 33% yoy, while finance cost continues to balloon, up 36% yoy. To put this into perspective, finance cost of SGD131.4m was similar to net profit. Net debt to equity went up significantly this quarter, to 252% (adjusted net debt/ equity 68%, which is the highest in history). This risk continues to be front-loaded over the next 18 months in our opinion, with estimated capex of

Olam complete bond right issue

• Bonds, warrants trade from 31 Jan
• Expect higher interest cost
• S$1.44 FV under review

Completes bond rights issue
Olam International (Olam) has completed the rights issue of US$750m in principle amount of 6.75% bonds due 2018, which also came with free detachable warrants. According to the company, it has allotted 748.428m bonds and 387.361m warrants (recall that existing shareholders have the right to subscribe for 313 bonds and 162 warrants), and the residual amount of 1.572m bonds has been taken up by the joint lead managers as these could not be packaged with the requisite number of warrants.

Listing and trading start 31 Jan
The bonds and warrants will be listed, quoted and traded on the Main Board of the SGX-ST from 9.00am on 31 Jan 2013. For purpose of trading on SGX-ST, each board lot of the bonds will comprise US$1,000 in principal amount, while each board lot of warrants will consist of 1,000 warrants. However, Olam has applied and gotten SGX approval for temporary counters to trade the bonds in board lots of US$100 in principal amount and the warrants in board lots of 100 warrants for a 1-month period.

Some medium- to long-term issues remain
While the full subscription by the major shareholders Kewalram (20.2% stake) and

Olam rights issue. Temasek’s commitment.

Temasek’s commitment to take up unsubscribed rights a big positive.

Olam has announced a rights issue that could potentially raise up to US$1.25b. With this rights issue, Olam would secure 5-year tenor debt funding of US $750m, which will help extend its debt maturity and liquidity profile. We believe this move will allay the fears of more investors regarding the risk of insolvency of Olam, particularly with Temasek’s commitment to take up 100% of rights not subscribed.

We re-iterate BUY with unchanged target price of S$2.20, pegged to 12x FY13 EPS. Olam announced a renounceable underwritten rights issue comprising US$750m 6.75% US$ denominated bonds due 2018 with 387m free warrants with each warrant carrying the right to subscribe for 1 new share. If converted, Olam can raise another US$500m of proceeds.

Up to US$1.25b may be raised: · Bonds (senior unsecured) can raise up to US$750m. The maturity is 5 years with 6.75% cash coupon, and issue price is 95%. · Warrants, which upon conversion, can raise up to US$500m. The tenor is 5 years, and non-exercisable for 3 years. Up to 387m shares may be issued upon conversion, representing 16.2% of existing share capital.

A shareholder with 1000 Olam shares has the right to subscribe:

Muddy Waters is not the issue

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In short, Muddy Waters is not the issue here, it is Olam's strategic and financial decisions that have brought this situation to a head.

OLAM'S announcement of a major financing package this week has been characterised as ranging from a "government bailout" to a "vote of confidence". Either way, it is time for Olam to get serious about creating long term sustainability. Having missed the point earlier this year from the Feb 21 CLSA report, the emergence of a significant short position, a 30 per cent decline in Olam's share price since and the resignation of Olam's 20-year CFO in June, Olam's management and board remain in denial. The short-seller research firm Muddy Waters produced an extensive 133 page report which Olam dismissed as out of hand and responded to with a lawsuit which dilutes management bandwidth, wastes shareholders' money and does not address the root causes of Olam's problems. In short, Muddy Waters is not the issue here, it is Olam's strategic and financial decisions that have brought this situation to a head.

The latest Temasek-backed transaction raises significant issues, as it is extremely expensive debt and equity capital, capital that Olam spent a week telling the market it didn't need. The package of US$750 million of five-year debt and so-called "free" warrants are hardly free as they have tremendous value.

Black-Scholes models have valued these warrants to be worth an estimated US$127 million. Since Olam's proposed US$750 million of debt is priced at 95 per cent of par, the proceeds, before fees, are actually US$712.5 million including the warrants. By backing out an estimated warrant value of US$127 million, the true bond value is actually only US$585 million, equal to 78 per cent of the original bond value. Thus, the true yield on the bond is not the 8 per cent that Olam would like investors to believe, but rather a whopping 13 per cent. Given the generous nature of these terms and Temasek's commitment to fully take up the rights issue, one has to wonder why Olam is paying US$15 million in underwriting fees to the banks who are taking no risk. If you back out those fees, the cost of this debt is an even more eye-popping 13.7 per cent.

In other words, Olam is offering existing investors a

How's Olam now

DJ MARKET TALK: Temasek Commitment On Olam Rights A Big Positive-OSK

Temasek's commitment to take up any unsubscribed Olam rights is a big positive, OSK Research says, noting the company's rights issue aims to raise up to US$1.25 billion, helping to extend its debt maturity and liquidity profile. "This move will allay the fears of more investors regarding the risk of insolvency of Olam, particularly with Temasek's commitment to take up 100% of rights not subscribed." It notes Olam said the effective bond cost is 8.08%, or US$61 million p.a., factoring in a 6.75% coupon and initial 5% discount, coming in at 13% of OSK's forecast FY14 interest expense of S$554 million. "Whilst this may be higher than the cost for past debt fund raising, it is lower than if Olam were to raise debt today (post Muddy Waters' report) without such a structure." It adds, while the bond issue won't lower Olam's gearing, it views it positively as it extends debt maturity; while gearing will fall if the warrants are converted, conversion isn't possible for the first three years, it says. It keeps a Buy call with S$2.20 target. The stock is up 5.7% at S$1.665.

DJ MARKET TALK: Olam View Still Muted Despite Confidence Boost - OCBC

Olam's plan to raise funds via a bond and warrant issue is a move to shore up confidence, OCBC says. "In a nutshell, management hopes that the confidence boost will help to dispel any lingering doubts about its viability and solvency, and thus shoring up its bond and share prices." But it keeps its Hold call and

Olam Offers Greater Clarity On Acquisitions

More follow up on Olam - Muddy Waters

DJ MARKET TALK: Market May Remain Cautious On Olam Shares - OCBC

Despite Olam's comprehensive rebuttal of short-seller Muddy Waters' critical report, the market could continue to take a cautious approach to its shares, OCBC says. It expects investors to give Olam's financial reports and corporate developments greater scrutiny. "This may also lead to investors adopting a less 'risk on' approach in terms of valuation for the company." It cuts its fair value to S$1.44 from S$1.80 based on 10X FY13 EPS from 12.5X previously. It keeps a Hold call. "While we may still see some near-term volatility surrounding Olam's share price as the market weighs in on the allegations and rebuttals, value may start to emerge around S$1.23 (FY13F NTA)." The stock is up 3.7% at S$1.555. (Muddy Waters issued a report accusing the commodities trader of a litany of failures, ranging from incompetence to malfeasance; Olam calls the allegations "false and misleading" and said it intends to vigorously defend itself.

DJ MARKET TALK: Olam +3.3%; Short-Covering Emerging -Dealer

Olam is up 3.3% at S$1.55 in strong volume, with S$37.8 million worth of shares changing hands, as buyers start returning to the stock after the company issued its rebuttal of short seller Muddy Waters' report. "It's quite a strong recovery," says Justin Harper, market strategist at IG Markets Singapore. "It's what we expected after hitting the S$1.50 level." A dealer notes there is short-covering in the stock, but adds

Olam International Refutes Muddy Waters Report

Lets get some news and follow up of Olam......

DJ - Olam Claims Sound Business Model

- Olam International Ltd. Wednesday shot back with a 45-page rebuttal of a research report by Muddy Waters LLC and said it faces no risk of insolvency.

- Olam has "sufficient liquidity" to fund its current business as well as future investment plans, the company said in a statement to Singapore Exchange, rejecting claims by short seller Carson Block and his firm Muddy Waters that the commodities supplier is running a risk of failure.

- Olam reiterated that its accounting practices "strictly" adhere to Singapore's rules and defended its business model and acquisition strategy.

"We would like to reiterate our position that the conclusions drawn in the (Muddy Waters') report are without merit," Olam said in the statement.

In a 133-page report released Tuesday,

Olam Buybacks Could Resume

Muddy Waters’ Carson Block made accusations of Olam regarding aggressive accounting, high debt levels and potential for failure caused the stock to fall 7.5% yesterday. We believe downside for the stock is limited as the group may commence share buybacks and as short positions are covered. Maintain BUY. Target price: S$2.38.

What’s New
Olam's management held an analyst/media conference call regarding the report on the group that Muddy Waters was supposed to released yesterday. Here are our key takeaways:

• Olam’s stock was halted yesterday morning prior to trading. The company was led to believe that an 80-page Muddy Waters report would be released pre-market yesterday and requested the halt in order to protect shareholders’ interests. As there was no report issued, this was lifted after 3:30pm to allow market participants to continue trading.

• Olam has noticed significant short positions in its stock over the past few months, and appears to be the "most shorted stock" in Singapore.

• Olam's investment relations team held an “investor” meeting on

Olam - Muddy Waters short-seller

0408 GMT [Dow Jones] STOCK CALL:
The key difference between Muddy Waters short-seller Carson Block's reported comments on Olam (O32.SG) and Sino-Forest (SNOFF) is that it believes Olam's accounting is aggressive, not fraudulent, UOB KayHian says in a note to clients. (Olam's shares are halted. Bloomberg reported Block said Olam is "heavily" indebted and aggressive in reporting biological gains;

 "It's a leap of faith to think the company is being honest with its valuation" gains, he said at the Ira Sohn Investment Conference in London according to the report, adding he expects Olam to fail with negligible recoveries for investors. Olam said it is "dismayed at the nature and lack of substance of these assertions and opinions about Olam's financial position.") "While the accusations are serious, we believe Block's argument is inconsistent as the group will not fail even if the entire value of its biological assets is written off," the house says.

UOB-KH notes fiscal-FY12 net gains on biological assets accounted for

Olam food segments remain strong

Target S$2.56



Olam reported 4QFY12 net profit of S$110m, down 14% YoY. If we strip out the effects from biological gains exceeding our forecast, adjusted net profit would be S$71m, below our S$91m forecast. This weakness is due to higher expenses. There was YoY earnings weakness from the industrial raw materials space, but food continues to power ahead. We lowered our FY13 net profit forecast by 6% to factor in continued cotton and wood weakness and higher costs. Remain positive on food, which accounted for 87% share of net contribution. Olam trades at a FY13F P/E of 10.8x, which is inexpensive versus FY13F net profit growth of 21%. Maintain BUY with an unchanged target price of S$2.56, derived from a 3-stage DCF valuation model. Our TP translates to a FY13 P/E of 13.9x, which is lower than the historical average of 17x.

Food still thriving. The three food segments collectively recorded FY12 NC growth of 32%. In contrast, the industrial raw materials suffered a 41% plunge in NC, with cotton origination affected by extreme market volatility, demand illiquidity and declining volumes. As the food segments account for 87% share of NC, overall NC still recorded a respectable 13% growth.

Still aiming for FY16 target net profit of US$1b. Olam has made cumulative capex of

Olam upcoming result unlikely to excite

4th quarter to round up an underwhelming year. Olam will announce 4QFYJun2012 results next Tuesday, 28th August, in what will likely be its first ever full year net profit decline since listing in 2004. While we don’t foresee any huge profit swings, numbers are likely to disappoint. We expect 4th quarter recurring net profit to come in at SG75m, with our FY12 net profit forecast of SG336m against consensus of SG347m.

Profit weakness likely to stem from IRM segment. Year-to-date, the Industrial Raw Materials segment, which is most sensitive to economic cycles have underperformed. While management has guided for Cotton to be a drag into the 4th quarter, the yoy impact may still disappoint, bearing in mind that 4Q11 was a record quarter for this segment, making up 33% of group net contribution. For 4Q12, the only additional qoq consolidation will be that of USD167m Nigerian biscuits and candy maker, though that’s unlikely to make a major impact.

Things to watch out for. Inventory has been building up over the past twelve months, up

Olam Board’s view stock price was trading significantly below its intrinsic value

Target Price S$2.58



What’s New
• We held a series of investor meetings with Olam International. Attendees from the company include Mr Shekhar Anatharaman, Executive Director – Finance and Business Development, as well as investor relations managers Mr Aditya Renjen and Ms Chow Hung Hoeng.

Key takeaways
• “Not a temporary role”. Shekhar’s appointment in his current role is not meant as a stop-gap measure to fill the role of CFO. His appointment was announced on 20 June, together with the resignation of CFO Ravi Kumar. (We hear Ravi is joining a Middle East telco.) Shekhar has been with the group since 1992 and has had oversight responsibility for the edible nuts, spices & vegetable ingredients (SVI) and packaged foods businesses. He also had the functional oversight of the Manufacturing and Technical Services (MATS) function and previously held senior roles in Country Management, as well as led various corporate functions like Finance, Treasury, and IT. Shekhar will perform his new role full-time and will be relieved of his duties overseeing the P&L of operational business units.

• Strategy unchanged, focus on risk management, FCF. Olam will continue to

No material impact on Olam CFO resignation

Resignation of CFO
Olam International Limited (Olam) has announced that its CFO Krishnan Ravi Kumar has resigned to pursue a new career outside the Agri-commodity sector. Ravi has led the corporate finance and treasury function for Olam for nearly 20 years. Meanwhile, Shekhar Anantharaman will be moving into a new and enhanced role as Executive Director – Finance and Business, where he will lead the group’s overall strategy and new business development activities and also oversee the corporate finance & accounts, and investor relations.

Profit-taking on news
Following the announcement of the news, Olam saw a 5.4% fall in its share price yesterday. However, we do not see the resignation as having a material impact on its daily operations as Shekhar is also a veteran in Olam, having spent 20 years there. As such, we believe that the resignation news is probably just an excuse to take profit on the stock’s recent jump of 23% over the last two weeks.

Share buyback in progress