Olam PATMI up 6% to S$45.6m even as revenue slides 8%

Performance in line with expectations.

Olam International Limited (Olam) posted 1QFY14 revenue of S$4321.0m, down 8% YoY, reflecting lower commodity prices and also relatively flat sales volume, reported OCBC Investment Research following the release of Olam's latest results.

Nevertheless, EBITDA improved 18% to S$243.0m, aided by margin expansion from upstream and midstream initiatives and also organic growth from core supply chain activities. As such, PATMI inched up 6% to S$45.6m; estimated core earnings (excluding bio-asset gains) climbed 25% to S$42.7m.

"We judge both revenue and core PATMI to be in line as these met 19% and 12% of our full-year estimates, respectively, with its first quarter being seasonally slower," said OCBC.

Business-wise, Olam noted that most segments "performed well despite the challenging industry environment", and the trajectory of the EBITDA and PATMI growth in 1QFY14 gives Olam further confidence that it will meet its plan targets for FY14.

But OCBC cautions that Olam has recalibrated its measure of profitability from GC (Gross Contribution/MT) and NC (Net Contribution/MT) to EBITDA. Hence, we believe that the market may need more time to digest the new information and track Olam's performance.

Looking forward, Olam plans to execute more sale and leaseback of upstream assets as part of its strategy to generate incremental cashflow, help maintain profitability while enhancing the returns on invested capital.

"Recall that it had recently announced the sale and leaseback of its almond plantation assets in Australia for A$200m. Based on its continued efforts to drive higher operating cash-flow generation from existing businesses, unlocking value from past investments, reduced pace of fixed capital investments, Olam believes it is on track to generate positive FCFF for FY14," noted OCBC.