Independent Asian Credit Research, Bondcritic

Warut Promboon

Independent Asian Credit Research

Asian Fixed Income/Frontier Market Research

Bondcritic

Bondcritic, established in 2009, is designed to be an independent credit research voice that helps investors gain insights and unbiased analyses on Asian fixed income market. Our mission is to discover deep-value Asian high-yield and distressed bonds with a bottom-up approach, together with the help of our proprietary ESG (Environmental, Social Development, and Governance) model. At the same time, we focus on bringing investment cases of unrated and unloved issuers to the general public.

Credit

We initiate our coverage of <a href="https://www.smartkarma.com/entities/olam-international-ltd" target="_blank" data-smartkarma-citation="entities:765:1" rel="noopener">Olam International (OLAM SP)</a> (Olam), a leading global food and agri-business with &gt;30 years of track record, headquartered in Singapore and majority-owned by the Singapore quasi-sovereign <a href="https://www.smartkarma.com/entities/temasek-holdings-pte-ltd" target="_blank" data-smartkarma-citation="entities:28816:1" rel="noopener">Temasek Holdings Pte Ltd (TMSK SP)</a>. The group laid out its 6-year strategic plan in 2019 to streamline its operations to be more focused on growth food segments, in line with healthy living and staples that are recession-proof so as to achieve its target to be the most differentiated and valuable global food and agri-business by 2024. This has resulted in divestments of non-prioritized businesses and assets since 2019 and more will be seen this year.Olam’s core business has been relatively low-margin and often exposed to the volatilities inherent in the agricultural and commodity sectors. As such, management looks to shift to a more value-added ingredient business and to add significant investments in mid-stream and processing activities so as to have greater pricing power and greater customer loyalty. As such, we expect the Group to remain highly leveraged on its capex stemming from expansion plans. Nevertheless, net gearing fell to a more comfortable 0.3x last December, after adjusting for realisable marketable inventories, secured receivables, and cash. We believe the two new separate entities will go for separate listings (IPOs) to bring in fresh equity funds when market conditions improve. We expect free cashflows to remain positive this year and next, due to full-year contributions from new investments in 2019, and proceeds from its ongoing divestments.Based on YTMs at time of writing, we believe the maturing OLAMPSP 20s are fairly-valued and assign a NEUTRAL recommendation. The rest of OLAMSP USD complex (EXHIBIT 1) is attractive against the “B+” benchmark and we assign an OVERWEIGHT recommendation which is based on (1) Olam’s potential revenue growth from its cocoa, grain, and animal feeds, and (2) potential IPOs of the Group’s two key businesses which would de-lever the Group’s balance sheets. On the other hand, the OLAMSP SGD complex is unattractive versus its USD counterparts and we assign an UNDERWEIGHT recommendation.

We initiate our coverage of Olam International (OLAM SP) (Olam), a leading global food and agri-business with &gt;30 years of track record, headquartered in Singapore and majority-owned by the Singapore quasi-sovereign Temasek Holdings Pte Ltd (TMSK SP). The group laid out its 6-year strategic plan in 2019 to streamline its operations to be more focused on growth food segments, in line with healthy living and staples that are recession-proof so as to achieve its target to be the most differentiated and valuable global food and agri-business by 2024. This has resulted in divestments of non-prioritized businesses and assets since 2019 and more will be seen this year.Olam’s core business has been relatively low-margin and often exposed to the volatilities inherent in the agricultural and commodity sectors. As such, management looks to shift to a more value-added ingredient business and to add significant investments in mid-stream and processing activities so as to have greater pricing power and greater customer loyalty. As such, we expect the Group to remain highly leveraged on its capex stemming from expansion plans. Nevertheless, net gearing fell to a more comfortable 0.3x last December, after adjusting for realisable marketable inventories, secured receivables, and cash. We believe the two new separate entities will go for separate listings (IPOs) to bring in fresh equity funds when market conditions improve. We expect free cashflows to remain positive this year and next, due to full-year contributions from new investments in 2019, and proceeds from its ongoing divestments.Based on YTMs at time of writing, we believe the maturing OLAMPSP 20s are fairly-valued and assign a NEUTRAL recommendation. The rest of OLAMSP USD complex (EXHIBIT 1) is attractive against the “B+” benchmark and we assign an OVERWEIGHT recommendation which is based on (1) Olam’s potential revenue growth from its cocoa, grain, and animal feeds, and (2) potential IPOs of the Group’s two key businesses which would de-lever the Group’s balance sheets. On the other hand, the OLAMSP SGD complex is unattractive versus its USD counterparts and we assign an UNDERWEIGHT recommendation.

Singapore

Temasek Holdings (Private) Limited operates as an investment company. The Company invests in financial services, telecommunications, media, technology, transportation, industrials, life sciences, consumer, real estate, energy and resources industries. Temasek Holdings serves customers worldwide.

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Temasek Holdings Pte Ltd (TMSK SP)

Olam International: Cocoa Against COVID

We initiate our coverage of Olam International (OLAM SP) (Olam), a leading global food and agri-business with >30 years of track record,...

Bondcritic

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