- Olam reported a -13.2% YoY decline in revenue in 1H23 driven by softer sales volume. EBIT managed to increase marginally by 1.1% YoY, supported by improved performance from subsidiary, Olam Food Ingredients.
- We expect softer earnings in FY23 as last year’s profit tailwinds have reversed while costs mount. We remain positive on longer-term earnings given upcoming earnings opportunities across its subsidiaries and favorable demand-supply dynamics supporting agriculture prices.
- Olam’s credit profile has moderated but remains decent. Debt levels have improved and the need for debt financing should ease moving ahead. While the debt servicing ability and cashflow have deteriorated, a strong liquidity profile helps to ease concerns.
- We like OLAMSP 4.000% 24Feb2026 Corp (SGD) and find it attractively priced. The bond is trading at an attractive yield of around 5.2% with a relatively short 2.5 years left to maturity.
About Olam Group Limited
- Olam Agri is a food, feed, and fibre global agri-business focused on high-growth emerging markets. It primarily supplies grains & oilseeds, integrated feed & proteins, edible oils, rice, specialty grains & seeds, cotton, rubber, wood products and provides commodity financial services businesses. It also has operations in farming, global origination, processing, trading, logistics, distribution, and risk management. A proposed Olam Agri IPO is targeted to take place by H1 2024.
- Ofi, or Olam Food Ingredients provides sustainable, natural and plant-based ingredients for large, high growth end-use categories. It is primarily involved in the cocoa, coffee, dairy, nuts and spices businesses. Ofi operates its own farm, farm-gate origination, manufacturing facilities, and innovation centres. A proposed ofi IPO is expected to take place after the Olam Agri IPO on a sequential basis.
- The remaining Olam Group consists of Nupo Ventures, Mindsprint and Olam Global Holdco (“OGH”). Nupo Ventures is an independent incubator for the group’s new businesses and start-up initiatives. Mindsprint offers shared services, digital solutions and technology services across the Group’s operating segments. OGH is responsible for the divestment of non-core assets and redeploying the capital released. After the IPOs for Olam Agri and ofi, the Group will remain listed on the SGX with OGH, Nupo Ventures and Mindsprint as its constituent businesses.
1H23 financial highlights
Chart 1: Revenue, sales volume, EBIT and PATMI at a glance
Chart 2: EBIT by operating groups
Business Outlook
Credit highlights
Chart 3: Liquidity profile remains strong and more than sufficient to cover total borrowings
Chart 4: Cash conversion cycle has improved significantly over the years
Recommendations
Table 1: Olam’s bonds
|
Bond Name |
Issuer |
Maturity Date / Call Date |
Years to Maturity / Call date |
Bond Price |
Yield to Maturity / Next Call (%) |
|
Olam Group Limited |
18 July 2026 |
- / 2.89 |
96.17 |
- / 6.85 |
|
|
Olam International Limited |
24 Feb 2026 |
2.49 / - |
97.25 |
5.19 / - |
|
|
Source: Bloomberg Finance L.P., Bondsupermart, iFAST compilations. Data as of 28 Aug 2023 |
|||||
- Before the intended IPO of Olam Agri and ofi, we did not see any material difference between the credit profile of Olam Group and OIL.
- Upon the potential IPO of Olam Agri and ofi next year (and its subsequent demerger), we expect Olam Group to see a reduction in debt levels. However, we also expect a decline in cashflow which may result in a potential degradation in Olam Group’s credit profile – noteworthy for Olam’s perp holders. Olam Agri is the largest revenue contributor currently, while ofi is the stable-growing operating group. For OIL, we expect its credit profile to remain resilient after ofi’s IPO.
- Temasek Holdings is a major shareholder for Olam Group (issuer of the perp) and OIL (issuer of the fixed rate bond). With a less rosy profit outlook for Olam Group following the IPO of Olam Agri and ofi, we also do not rule out the possibility for Temasek to reduce its position in the group.
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