Worst is over for Olam: CIMB

The worst is over for Olam, CIMB says. “Firstly, cotton is expected to recover from 2Q13. Secondly, EBIT margins came under pressure as the group front-loaded its planned investments.”

It notes management indicated it will slow the investment pace and focus on extracting value, implying profit and margin uplift. It notes excluding bio-gains, FY12 core net profit was 9% below its forecast, while headline net profit came in at 110% of its estimate; FY12 headline net profit fell 14% to $371 million as weak cotton and wood markets continued to drag the industrial raw material segment, while high opex for business expansion and gestation of new acquisitions helped lead to a 0.5 percentage-point compression in net profit margin, it says.

It keeps an Outperform call with $2.61 target. “The group will reap rewards as acquisitions start to pay off.” The stock is down 2.3% at $1.945.