Olam may have 29% YoY profit growth in FY 2011

We expect strong 4Q FY11 results
We expect Olam to report strong 4Q FY11 results on 29 August. For FY11, we see 29% YoY core net profit growth, on the back of 16% YoY volume growth, led by strength in edible nuts/spices/beans, and confectionery/beverage ingredients.

Balance sheet shored up
Olam in June raised US$603 mn in capital in three tranches, consisting of US$200 mn in placement shares at S$2.60, US$202.9 mn in preferential shares (for existing shareholders, with 39.84% take-up by Kewalram, Temasek and CEO Sunny Verghese) at S$2.56 (1 for 22 shares held), and US$200 mn in placement shares to Temasek at S$2.60.

Olam will divide the use of proceeds as 50% for potential acquisitions, 30% for capex and the rest for corporate purposes. Prior to that, Olam successfully launched a fully underwritten US$1.25 bn term loan facility (50% in three-year and 50% in five-year tranches). We believe that Olam has sufficient investment fire-power to fund its growth initiatives over the next three years and we expect the likely announcement of further valueaccretive deals in the medium term.

Valuations compelling
The change in target price and forecasts reflects the 13% dilution from the June equity-raising exercise. Olam is trading at 11x P/E, and set to deliver an 18% EPS CAGR. We maintain our OUTPERFORM rating.