Nomura upgrades Olam to ‘Buy’

Analysts: Tanuj Shori and Tushar Mohata

Olam invested S$585 million in upstream integration initiatives in FY2010

Nomura yesterday upgraded Olam to ‘Buy’ and upped its target price by 15% to S$3.90, after it announced 2 deals with the west central African state of Gabon.

The deals involved significant investment of US$1.54 billion, to develop a 1.3million-ton urea fertilizer plant, and 50,000 ha of palm plantations.

Its urea investment is expected to lower cost of production and stabilize supplies of the key feedstock (natural gas), where Olam entered into a 25-year fixed-price contract (at undisclosed prices) with the Republic of Gabon.

”Although we believe support from Gabon’s government is a big catalyst, there should still be significant execution risks, as fertilizer production is a new area for Olam, and it has not been tried on such a large scale in Gabon.”

The Nomura analysts are bullish on Olam’s Gabon urea and palm ventures, citing attractive margins, secure feedstock supplies, adequate risk management, past execution record in Africa and in M&A ventures, and government support.

Nomura estimates that these ventures could contribute about 15% of Olam’s EBITDA in 5 to 6 years’ time, with possibility of an even bigger contribution to bottom line.

Olam’s FY2010 revenues were up 21.7% at S$10.5 billion.

UOB Kayhian upgrades First Resources to ‘Buy’

Crude palm oil fresh fruit bunch yield has been growing strongly.

UOB Kayhian yesterday upgraded First Resources to ‘Buy’, and upped its target price by 16% to S$1.62, after it posted strong growth recovery in fresh fruit bunch (FFB) production.

The broker is expecting higher average selling prices for crude palm oil (CPO) of RM 2,650 per ton for 2011 and 2012.

First Resources’ FFB production for 3Q10 surged 46.1% month-on-month, and was up 16.5% year-on-year.

The fast growing CPO producer is expected to continue with its aggressive new planting in Kalimantan (estimated at 10,000 to 15,000 ha p.a.).

The aggressive planting is expected to prolong its double-digit FFB production growth beyond 2012 (2011F: 13.4% and 2012F: 16.2%) with a nice mix of young prime and prime areas.

Its fractionation plant is also expected to be ready by early 2011.

C&G raises regulatory standards by hosting national waste-to-energy summit

C&G executive director Lin Yan is a waste-to-energy expert.

The leading waste-to-energy (WTE) player displayed its clout when it co-hosted with China Academy of Urban Construction this month a summit to formulate industry regulations.

China is drafting regulatory standards for the operation and maintenance of WTE plants, pollution control measures and government oversight, and the summit was a platform where 30 industry experts, including C&G, contributed to the policy decision-making.

C&G is one of the top three WTE players in China, with a strong record of winning awards for its technological achievements.

It currently has 10 build, operate, and transfer (BOT) projects in 4 Chinese provinces.