Monday, May 18, 2009

Olam - Buy by DBS (15 May 09)

The next stage of growth

At a Glance
• 3QFY09 earnings ahead of our and consensus expectations on CB repurchase gains
• Core earnings slightly below expectations on lower Net Contribution/MT
• FY09F and FY10F core EPS (FD) revised by –8.9% and –2.8%
• TP upgraded to S$2.05 based on 10% premium to revised CY10F STI PE target of 12.2x

9MFY09 earnings 80% of our FY forecast. Olam booked 3QFY09 net profit of S$87.0m (-15.8% q-o-q, +56.1% y-o-y), which would bring 9MFY09 earnings to S$205.4m (+99.7% y-o-y) – well ahead of our and consensus forecasts. However, this was mainly due to gains from repurchase of CB, amounting to S$80.5m for 9MFY09 and US$24.6m for 3QFY09. Outside gains, 3QFY09 earnings slightly below expectations. Stripping the gains, 9MFY09 net profit would have come in at S$124.8m or around 7% below forecast on annualized basis. Performance was mainly dragged by slightly lower than expected net contribution/MT across the board. 3Q09 sales volume declined by 12.2% q-o-q; although we understand that

4QFY09 volumes had bounced back strongly. FY09F and FY10F core EPS (fully diluted) lowered. Accounting for lower net contribution/MT and slightly higher volumes (+2.4%) for the full year, we revised our FY09F and FY10F core EPS (fully diluted) by -8.9% and -2.8% to 10.0 S cents and 13.5 S cents, respectively.

TP updated on higher PE target, buy call maintained. We now peg our PE target for the counter at 13.4x CY10F PE (representing 10% premium to our current CY10F STI PE target of 12.2x). Based on our revised CY10F EPS of 15.2 S cents, this yields a revised TP of S$2.05/share. Maintain Buy.

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