Commodities Report

8/7/2019 Commodities Report

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Please refer to the important disclosures at the back of this document.

Economic growth to bolster commodity demand in 2011.The global economic recovery in 2010 has fuelled demand forcommodities, sending the benchmark Reuters/Jefferies CRBIndex up 13% year-to-date. Market watchers expect the indexto continue its ascent in 2011, buoyed by growing demand forcommodities amid tight demand and supply fundamentals.

The International Monetary Fund expects global economiesto grow 4.8% in 2010 and a further 4.2% in 2011, led byemerging economies. It expects commodity prices to rise,driven by an upward shift in commodity demand owing toeconomic growth coupled with sluggish supply responses.

2011 earnings driven by organic and inorganic growth.Commodity-related companies within our coverage universeare expected to perform well against this backdrop. Thesestocks delivered an average gain of 12% YTD, slightlyoutperforming the Straits Times Index (STI's) 10% increase.We expect further outperformance in 2011 to be driven byearnings contribution from recent investments and acquisitions,many of which are nearing maturity. Tight underlying demandand supply fundamentals will also boost organic growth.

Extending dominance amid industry consolidation.Mergers and acquisitions were a recurring theme in 2010 ascompanies were quick to capitalize on investment opportunitiesbrought about by the economic downturn. We expect industryconsolidation to persist in 2011, especially since critical massis a key advantage in this industry. Smaller and less adequatelymanaged companies may eventually be marginalized as thelarger players extend their dominance.

Commodity price inflation and volatility necessitatestrong balance sheets. Commodity prices have undergone

wild swings of late and volatility may persist in the near termdue to supply shortage. Inflation and price volatility intensifyworking capital requirements. Strong balance sheets aretherefore crucial. Ready access to capital and agility incapturing opportunistic investments will be key differentiatingfactors that enable players to extend their dominance amidindustry consolidation, in our view.

Remain OVERWEIGHT. We remain OVERWEIGHT oncommodities as the continued economic recovery in 2011 willboost demand for raw materials. Within the sector, ourpreference lies with companies that have strong balancesheets, well-diversified business models and proven executiontrack records. Noble Group [BUY, fair value S$2.59] andOlam International [BUY, fair value S$3.53] are our preferredpicks within our coverage universe.

Seizing opportunities amid industry consolidation

Commodities

SINGAPORE Company Update Results MITA No. 010/06/2009

14 December 2010

Overweight

SINGAPORE Sector Update MITA No. 016/06/2010

Lee Wen Ching(65) 6531 9806e-mail: [email protected]

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STIWiIL

GAR

Noble Olam

SAR

Price Rating Fair FY11 FY11 Analyst

(10 Dec) Value PER DivYield

(S$) (S$) (x) (%)

Golden Agri-Resources 0.77 BUY 0.91 14.3 0.6% Carey Wong

Noble Group 2.12 BUY 2.59 13.9 1.8% Lee Wen Ching

Olam Int'l 3.10 BUY 3.53 21.2 1.2% Lee Wen Ching

Straits Asia Resources 2.45 BUY 3.13 10.0 6.0% Lee Wen Ching

Wilmar 5.95 HOLD 6.48 16.5 1.3% Carey Wong


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Page 2 14 December 2010

Sector Update

Page

Table of Contents

Section A Year in review 3

Section B The landscape in 2011 5

Section C Consolidation continues - Inorganic 8

growth to drive earnings

Section D Commodity prices to trend higher 10

Section E Risk factors 16

Section F Recommendation 17

Section G Company Profiles 19

Section H Disclaimer 33


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Sector Update

Section A: Year in review

Economic recovery has spurred higher commodity prices... 2010marked a positive year for commodities. With demand for commodities

being leading economic indicators, expectations of a global economic

recovery buoyed the outlook for commodities, sending the benchmark

Reuters/Jefferies CRB Index up 42% from its 2009 trough. Despite its

recovery, the index remains 35% below its 2008 peak levels and market

watchers predict a continuation of the index's climb in 2011.

Exhibit 1: Reuters/ Jefferies CRB Index, 2003 - present

Source: Bloomberg

as well as shares of commodity-related companies. Positive

sentiment surrounding physical commodities spilled over to commodity-

related companies. With the exception of Wilmar International (WIL), all

commodity-related stocks within our coverage universe posted year-to-date

(YTD) gains. The sector delivered an average gain of 12% YTD, slightly

outperforming the Straits Times Index (STI's) 10% increase.

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The Reuters/Jefferies C RB Index

tumbled by 54% during the 2008-2009 crisis and has y et to fully

recov er its losses.. .


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Sector Update

Exhibit 2: YTD performance of commodity-related shares vs. STI

Source: Bloomberg

Acquisitions and investments were a recurring theme . Companies

were quick to capitalize on investment opportunities brought about by the

economic downturn. Industry consolidation was rampant as companies

with strong financial muscle turned to inorganic growth strategies to increase

their market share at the expense of their less adequately capitalized peers.

Distressed assets were aplenty and acquisitions were sealed at generally

attractive valuations.

M&A to drive corporate earnings. While the global economic recovery

has reduced the availability of such opportunistic investments, we expect

investments and acquisitions to continue in 2011, albeit at a slower pace.

Meantime, earnings accretion from recent investments will drive profits in

2011. We have already seen companies such as Noble Group (Noble) and

Olam International (Olam) benefitting from higher volumes aided by pipelines

enlarged via investments and acquisitions, and we expect greater volumes

to flow through in 2011 as more investments approach maturity, thereby

boosting profits.

But policy risk could stall further gains. Commodity prices have

strengthened in 2010 and are poised for further gains in 2011 amid tight

demand and supply fundamentals. However, we see increased uncertainty

stemming from policy risk as nations attempt to curb inflation via price

controls. For instance, China has been reported to be deliberating price

caps on agricultural products and other essential food items. Such policies

could hurt commodity and food producers and supply chain managers alike,

as profit margins and volumes may come under pressure.

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Sector Update

Exhibit 3: Real GDP Growth

Source: IMF

Section B: The landscape in 2011

Global economic expansion led by emerging economies. TheInternational Monetary Fund (IMF) expects global output to expand by 4.8%

in 2010 and a further 4.2% in 2011. Growth will likely be driven by emerging

and developing economies - such as China and India - where the IMF has

forecasted GDP growth of 7.1% in 2010 and 6.4% in 2011. In contrast,

advanced economies are expected to recover at a more sluggish rate of

2.7% in 2010 and 2.2% in 2011.

Leading indicators such as industrial production and employment have

continued to rebound, with emerging economies leading the way. Consumer

confidence in advanced economies such as US, Europe and Japan remains

cautious, suggesting that global economic recovery will continue to be

spurred by emerging economies.


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Sector Update

Exhibit 4: Leading economic indicators

Source: IMF

Robust demand for commodities to boost prices. The global economic

recovery is widely expected to fuel demand for commodities, thereby

supporting commodity prices. Among the various asset classes, real prices

of oil and gold are expected to outperform over the next five years. Demand

growth for cyclically sensitive commodities such as metals may, however,

moderate as the boost to global manufacturing activity from the inventory

cycle wanes. While the IMF projects stable food prices over the longer

term, we note that crop prices have recently undergone wild swings owing

to irregular weather patterns which have resulted in supply shocks (amid

inelastic demand). This has elevated food inflation concerns.


7/33


Sector Update

Exhibit 5: Commodity price projections

Source: IMF

China - a major driver. China has, and will continue to play a major role

in influencing global commodity markets, given the rapid increase in its

economy's share of global commodity demand over the past decade.

Moderating growth, or policy controls such as the introduction of price

ceilings on commodity prices, may restrain demand expansion and intervene

with free market forces.

Over-reliance on China as a main growth driver may subject companies to

concentration risk. Nevertheless, China remains too large a market to ignore,especially since GDP growth is projected to be among the highest in the

world at 10.5% in 2010 and 9.6% in 2011.

Size does matter. Companies sought to expand their market share via

inorganic growth strategies in 2010, and we expect this trend to persist in

an industry where critical mass is crucial. Industry consolidation will

continue to shape the industry in 2011. We believe that smaller and less

adequately managed companies will eventually be marginalised as the

larger players extend their dominance.

Risks. We remain sanguine on commodities-related stocks within ourcoverage universe and believe that they are poised to leverage on the global

economic recovery. Key risks that could derail the growth trajectory include

policy risk (including fiscal or monetary tightening, price controls and trade

restrictions), supply disruptions arising from unusual weather patterns, and

renewed stress on global economies.


8/33


Sector Update

Section C: Consolidation continues - Inorganic growth to drive

earnings

Darwinian process will continue to unfold. Industry consolidation is

likely to be a recurring theme in 2011. In Noble's CEO Mr Ricardo Leiman's

words, "as the commodity business becomes more global and more capital

intensive, there will be some sort of Darwinian process that will take place.

It has been taking place since the financial crisis and will continue...

benefitting companies that have access to capital markets and can finance

its expansion and growth" As this process unfolds, we believe that smaller

and less adequately managed companies will eventually be marginalised

as the larger players extend their dominance.

Benefits of consolidation. In our view, industry consolidation presents

several benefits, especially to supply chain managers where profits are

driven by volumes. These include critical mass and economies of scale,

access to complementary products and new markets, as well as cost and

channel synergy. Increasingly, supply chain managers have also been

taking stakes in upstream assets in a bid to secure supplies and to tap on

rising commodity prices. Competition for upstream assets may heat up

should supplies become constrained in 2011.

Singapore-listed commodity firms have been capitalizing on

opportunistic investments. Supply chain managers Noble and Olam have

embarked on a series of investments (both greenfield and brownfield) and

acquisitions in 2010 and we expect more to come in 2011. Olam's ongoing

discussions with French conglomerate Louis Dreyfus for a "possible

collaboration" is one of the more closely watched deals in this space. The

company remains in confidential negotiations and has not disclosed further

details since its initial disclosure in Sep. Other recent investments recently

announced by Olam include the setting up of a sugar refinery in Nigeria, as

well as the construction of a fertilizer complex and development of palm

plantations in Gabon. These investments are expected to boost Olam's

scale and profitability in the medium term.

Similarly, Noble has spent US$2.8b investing in upstream assets, production

expansion, fixed asset construction and acquiring new businesses since

2007. Its string of investments includes Sempra Energy Solutions, which

is expected to start contributing to earnings in 4Q10, as well as expansion

of its oil and gas division. These should build a larger volume and revenue

base to support the group's sustained long term growth.

Meanwhile, WIL has also jumped on the bandwagon, acquiring palm oil

plantation assets in Indonesia and Africa, infrastructure in the form of four

new bulk carriers and other food related assets. The most noteworthy is its

A$1.75b acquisition of Australian-based Sucrogen - one of the largest cane

sugar producers in the world - to jumpstart its ambition to expand into the

sugar industry.


9/33


Sector Update

Last but not least, Golden Agri-Resources (GAR) acquired the entire

business of Florentina International Holdings (FIH) - a manufacturer of snacknoodles, instant noodles and ice sticks in the PRC which also owns eight

production plants in seven provinces - for US$142.8m. According to GAR,

the acquisition will allow it to leverage on the market knowledge, customer

base and extensive distribution channels of FIH's food business in China,

especially for its consumer pack oil and specialty fats business. Separately,

it is also looking at investing in large-scale cultivation of sustainable oil

palm plantations and related downstream activities in Liberia which could

run up to US$1.6b over the next 20 years.

Inorganic growth to fuel performance in 2011 and beyond. Noble's

and Olam's pipeline investments are starting to bear fruit as they approachmaturity, and we expect them to boost earnings in 2011 and beyond. For

instance, Olam's performance in FY10 was driven mainly by higher volumes

from acquired businesses, where volumes jumped 42.0% as compared to

a relatively modest 18.7% volume growth from existing businesses.

Similarly, Noble has new assets operating coming on stream from 4Q10

and these should boost the group's pipeline capacity, and in turn, volume

and earnings.

Access to capital remains a key ingredient to success; large

commodity traders such as Noble and Olam hold competitive edge.In view of continued industry consolidation in 2011, strong balance sheets

and access to capital are likely to be key differentiating factors. In this

respect, large commodity traders such as Noble and Olam are likely to

have a competitive advantage from implied support from their strategic

investors China Investment Corporation (CIC) and Temasek Holdings,

respectively. In addition, both have proven to be successful in tapping capital

markets. We expect them to be at the forefront of industry consolidation.


10/33


Sector Update

Exhibit 6: Reuters/ Jefferies CRB Index, year-to-date

Source: Bloomberg

Section D: Commodity prices to trend higher

Upward pricing pressure to persist... Commodity prices have risen by

13% YTD and are expected to continue trending higher in 2011, buoyed by

the improving global macroeconomic outlook, tight demand and supply

fundamentals, quantitative easing policies, potential weakness in the USD,

and low interest rates.

According to the IMF, commodity prices are projected to remain high by

historical standards over the medium term. The upward shift in commodity

demand growth is expected to be sustained as global growth continues to

be driven by emerging economies. A sustained upward shift in commodity

demand can lead to increases in real commodity prices because of sluggish

supply responses, given long lags for exploration and investment.

implying a favourable operating environment. The IMF projects

modest appreciation in the prices of energy, metals and food over the next

two years. Higher commodity prices imply favourable underlying dynamics

and generally bode well for all commodity-related companies under our

coverage universe. Note, however, that supply chain managers such as

Noble and Olam do not take outright price exposure. Earnings are driven

by volume. Nevertheless, earnings and profit margins tend to be correlated

to commodity prices.

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11/33


Sector Update

Exhibit 7: IMF's projection of commodity prices

Source: IMF

Exhibit 8: CBOT wheat futures

Source: Bloomberg

Volatility may persist in the near term. Commodity prices have been

volatile of late and this situation could persist in the near term. Prices of

soft commodities such as wheat, soybean, corn, cotton and sugar recently

surged to 52-week highs on supply shortage. Low inventory levels are

expected to spur restocking, thereby driving demand higher. At the same

time, unusual weather patterns has affected upstream producers and

crimped supplies. A combination of these factors may exacerbate near

term price volatility.

Price volatility presents a double-edged sword. On one hand, supply

chain managers such as Noble and Olam may be able to command a

higher counterparty premium given their scale and superior delivery fulfillment

versus smaller players, while upstream producers may be able to lock in

superior selling prices. On the other hand, however, extreme price volatility

may lead to heightened counterparty default risk, margin volatility and

reduced earnings visibility.

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Sector Update

Exhibit 9: CBOT soybean futures

Source: Bloomberg

Exhibit 10: CBOT corn futures

Source: Bloomberg

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Sector Update

Exhibit 11: NYBOT cotton futures

Source: Bloomberg

Exhibit 12: CBOT sugar futures

Source: Bloomberg

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Sector Update

Heightened price volatility calls for balance sheet strength. Strong

balance sheets and financial flexibility are crucial in an environment of

commodity price inflation and volatility, as this can potentially increaseworking capital requirements. Inadequate balance sheet strength was a

common driver behind industry consolidation in 2010 as poorly capitalized

companies found themselves unable to fund short term working capital

needs and were eventually acquired by their stronger peers.

As such, we favour large players who have ready access to capital, who

are nimble to capitalize on acquisition opportunities that may arise. In this

respect, large commodity traders such as Noble and Olam are likely to

have a competitive advantage from implied support from their strategic

investors China Investment Corporation (CIC) and Temasek Holdings,

respectively. In addition, both have proven to be successful in tapping capitalmarkets. We expect them to be at the forefront of industry consolidation.

Sustained commodity price inflation may benefit upstream

producers. An environment of stable, robust commodity prices favours

upstream producers such as plantations and miners, as these players

assume outright price exposure. Higher commodity prices elevate gross

profit margins, ceteris paribus. For this reason, mid-stream supply chain

managers have been encouraged to increase their presence in the upstream

value chain in a bid to capture lucrative margins and to secure supplies.

Should raw material supplies become constrained, we may see bidding

activity for upstream assets heat up in 2011.

Within our coverage universe, Straits Asia Resources (SAR) is directly

leveraged to thermal coal prices, while GAR and WIL are exposed to Crude

Palm Oil (CPO) prices. GAR, being one of the largest oil palm plantation

owners in the world, stands to benefit the most from higher CPO prices,

but rising prices could hurt margins for WIL's consumer pack business.

Exhibit 13: Thermal coal prices, 2009 - present

Source: Bloomberg

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Resources


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Sector Update

Exhibit 14: Crude palm oil prices, 2009 - present

Source: Bloomberg

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Sector Update

Section E: Risk factors

Policy risk. Macroeconomic policies such as quantitative easing may createan environment of prolonged low interest rates and USD, spurring inflation.

As such, there may be increased risk of governments implementing price

controls or trade restrictions in a bid to reign in inflation. Other

macroeconomic policies that may hurt demand for commodities include

fiscal or monetary tightening measures.

Concentration risk from China. China has undoubtedly been a major

driving force behind commodity markets, with its huge domestic demand

spurring demand for raw materials and finished goods alike. The nation's

share of global commodity demand has increased rapidly over the past

decade, and its rapid growth - which the IMF projects to be at 10.5% in2010 and 9.6% in 2011 - implies that it will continue to dominate global

commodity markets. Moderating growth or policy controls from China could,

as such, have a widespread impact on global commodity markets; and

companies with significant exposure to China may be vulnerable to

concentration risk.

We are already seeing signs of cooling measures from China. Input prices

are increasing at a near record pace, prompting speculation over the

implementation of monetary tightening and potentially underwriting the case

for further tightening to bring inflation under control. For instance, China

has been reported to be deliberating price caps on agricultural productsand other essential food items. Such policies could hurt commodity and

food producers and supply chain managers alike, as profit margins and

volumes may come under pressure.

Acquisition indigestion. As the industry continues to consolidate, we

see potential pitfalls associated with acquisition risk. These include over-

aggressive acquisitions at the expense of balance sheet health, execution

risk in integrating newly acquired assets with existing portfolios, as well as

poorer-than-expected performance from acquisition targets. Unsuccessful

acquisitions or acquisitions valued at an unsubstantiated premium may

take a toll on future earnings.


17/33


Sector Update

Section F: Recommendation

Commodities to benefit from economic recovery. We remain

OVERWEIGHT on commodities as the continued economic recovery in

2011 will boost demand for raw materials. Within the sector, our preference

lies with companies that have (i) strong balance sheets, (ii) well-diversified

business models and (iii) proven execution track records.

Exhibit 15: Business models of commodities firms under coverage

Source: OIR

Preferred picks: Noble and Olam. Among the realm of locally listed

commodities stocks, we highlight Noble and Olam as our preferred picks

for 2011. Noble's shares have lagged its closet peer Olam's YTDperformance, possibly weighed by its lackluster showing in 2Q10 owing in

part to poor Chinese soybean crushing margins. While policy risk from

China remains, Noble's well-diversified business model means that continued

growth from other segments will offset underperformance from any single

business unit. In addition, the group has laid the foundation for medium

term growth by expanding its pipeline capacity and these efforts should

come to fruition in 2011. Its strong balance sheet also positions it for

inorganic growth opportunities.

We also like Olam for its consistent track record and agility in capturing

opportunistic investments. Its existing businesses should continue to dowell on the back of robust demand and supply fundamentals for agricultural

commodities. Volume contribution from investments and acquisitions will

further boost the group's earnings in 2011.

Golden Agri-Resources Noble Olam Straits Asia Resources Wilmar

Description Oil Palm Plantation Owner Supply chain manager Supply chain manager Coal miner Supply chain manager

Product portfo lio - Crude Palm oil- Agriculture- Energy

- Metals, minerals and ores

- Agriculture - Thermal coal- Crude palm oil- Soybean crushing

- Consumer pack cooking oil

Key earnings driver Volume, CPO prices Volume Volume Coal price Volume, CPO prices


18/33


Sector Update

Exhibit 16: Sector coverage

Source: OIR

Price Rating Fair FY11 FY11 Analyst

(10 Dec) Value PER Div

Yield

(S$) (S$) (x) (%)

Golden Agri-Resources 0.77 BUY 0.91 14.3 0.6% Carey Wong

Noble Group 2.12 BUY 2.59 13.9 1.8% Lee Wen Ching

Olam Int'l 3.10 BUY 3.53 21.2 1.2% Lee Wen Ching

Straits Asia Resources 2.45 BUY 3.13 10.0 6.0% Lee Wen Ching

Wilmar 5.95 HOLD 6.48 16.5 1.3% Carey Wong


19/33


Sector Update

Section G: Company profiles

Golden Agri-Resources Ltd: Upgrade to BUY on raising CPO trend

Summary: Golden Agri-Resources (GAR) is likely to see further boost

from the continued run-up in CPO (crude palm oil) prices over the next six

months, underpinned by supply-side issues brought on by incremental

weather conditions in Indonesia. This is likely to affect CPO output for

Malaysia and Indonesia to a smaller extent, and we see the need to raise

our CPO price assumption yet again from US$900/ton to US$950/ton; this

as we expect prices to edge up even more in early 2011 before dropping off

after mid Jun 2011. But in line with the sharp spike in CPO prices, the

Indonesian government has also moved to raise the export tax on the

commodity from 15% in Nov to 20% in Dec. We are increasing our estimatesfor FY11 revenue and core earnings by 5.0% and 8.6% respectively. As we

are also raising our valuation from 16x to 17x FY11F EPS, our fair value

improves from S$0.78 to S$0.91. As there is now an upside of >10%, we

upgrade our rating to BUY.

Noble Group Ltd: Earnings to take flight in 2011

Summary: We reiterate our BUY rating on Noble Group (Noble) with S$2.59

fair value estimate in anticipation of earnings acceleration in FY11, as the

group begins to reap the fruits of its recent pipeline investments. To recap,

Noble's 3Q10 results exceeded expectations, reversing sharply from its

weak 2Q10, with revenue of US$14.9b (+78.7% YoY; +15.6% QoQ) and

core net profit of US$131.1m (flat YoY; +178% QoQ). Going forward, we

expect earnings to be buoyed by strong underlying fundamentals for

commodities such as energy and agriculture. Several of the group's pipeline

investments are nearing maturity and these should lend a further boost to

earnings from 4Q10. Management targets to achieve US$1b in earnings

over the next three years, implying a 24% CAGR between FY09 and FY13.With its robust balance sheet, the group is well-positioned to capture

investment opportunities that may arise.


20/33


Sector Update

Olam International: Strategically positioned amid industry

consolidation

Summary: Olam International (Olam) kicked off its FY11 on a strong note

and remains poised for sustained medium-term growth, driven by robust

underlying fundamentals for agricultural commodities, coupled with volume

and margin growth on the back of the group's ongoing expansion initiatives.

The group recently delivered a 30.6% YoY growth in 1Q11 revenue to S$2.5b,

while net profit jumped 56.2% YoY to S$29.7m. Volumes grew 21.1% as it

gained market share amid industry consolidation, while improved margins

further boosted profits. Going forward, further margin expansion will be

supported by the provision of value-added services. In addition, we view

Olam's ready access to capital as a strategic advantage that will allow it to

extend its dominance amid industry consolidation. We maintain our BUYrating on Olam. Our fair value estimate remains at S$3.53

Straits Asia Resources: 2011 earnings to recover along with

thermal coal prices

Summary: Straits Asia Resources (SAR) has successfully navigatedthrough a challenging 2010 and we believe that the group is now ready to

leverage on an upturn in 2011. Thermal coal prices have been rising and

experts predict continued upward pressure amid tight demand and supply

fundamentals. China's restocking ahead of winter has been driving demand,

while Indonesian supplies remain constricted as wet weather has hampered

production, resulting in higher thermal coal prices. We expect margin

compression in FY10 to reverse in FY11. Our projections imply a 141%

surge in FY11 net profit, driven by (i) a recovery of thermal coal prices, (ii)

increased production volumes, and (iii) easing cost pressure. We maintain

our BUY rating and S$3.13 fair value estimate. Key risks include delays in

obtaining the Pinjam Pakai permits, higher than expected costs, prolongedwet weather and continued USD/SGD weakness.


21/33


Sector Update

Wilmar: Near-term margin squeeze may continue

Summary: Wilmar International Limited (WIL), after posting a pretty muted

set of 3Q10 results recently, could continue to face margin squeeze in its

edible oil and oil seeds crushing business in the near to even medium term

due to the persistent rise in raw material prices. And because its consumer

products are typically deemed to be "essential food items", it could also

face difficulties in passing on the higher raw material prices to consumers

due to governmental price controls. As such, we see the need to revise

down our FY11F earnings by 8.0% to account for the risk of an extended

period of margin squeeze. Our fair value also drops from S$7.04 to S$6.48,

even as we keep our valuation unchanged at 18x FY11F EPS. Maintain

HOLD in view of its more positive long-term outlook.


22/33


Sector Update

Upgrade to BUY on Raising CPO Trend

Golden Agri-Resources Ltd14 December 2010

Upgrade to

BUYPrevious Rating: HOLD

Closing price (10 Dec): S$0.77Fair Value : S$0.91

Reuters Code GAGR.SI

ISIN Code E5H

Bloomberg Code GGR SP

Issued Capital (m) 12,139

Mkt Cap (S$m / US$m) 9,407 / 7,193

Major ShareholdersThe Widjaja Family 48.5%

Free Float (%) 51.5%

Daily Vol 3-mth (000) 68,972

52 Wk Range 0.480 - 0.795

Carey Wong(65) 6531 9808e-mail: [email protected]

Further CPO price upside. Golden Agri-Resources (GAR)

is likely to see further boost from the continued run-up in CPO

(crude palm oil) prices over the next six months, underpinned

by supply-side issues brought on by incremental weather

conditions in Indonesia. During its recently-concluded 3Q10

results briefing, management revealed that it does not expect

any increase in production in 2010 (versus +5% previously),

attributing the shortfall to the heavy rainfall over the past fewmonths, which has already led to a 7% fall in FFB (fresh fruit

bunch) output YTD. Rain also hampered new plantings, which

only grew by 7.8k ha YTD versus an original target of 25k ha.

Still, GAR believes that the continued rise in CPO prices should

be more than able to make up for the production shortfall.

Revising our CPO base assumption yet again. And in view

of the current supply issues which are likely to affect CPO

output for Malaysia and Indonesia to a smaller extent, we see

the need to revise up our CPO price assumption yet again

from US$900/ton to US$950/ton; this as we expect to see

prices edging up even more in early 2011 before dropping offafter mid Jun 2011. As a recap, CPO prices have risen sharply

from an average of US$808/ton in 3Q10 to an average of around

US$979/ton in Oct and Nov 2010; hence we see further room

for earnings upside in the near term, given that CPO prices

are now hovering above US$1000/ton.

Also likely to see higher export taxes. But in line with the

sharp spike in CPO prices, the Indonesian government has

also moved to raise the export tax on the commodity, which

also works to indirectly cap the domestic selling price; and

according to recent media reports, the government is also

planning to revise the tax again in Dec despite just hiking itfrom 10% to 15%. As a recap, the export tax is on a progressive

scale and will rise with CPO prices; we understand that it will

hit a max of 25% should CPO prices rise above US$1250/ton.

Raising fair value to S$0.91. As a result of our latest revision,

we are increasing our estimates for FY11 revenue and core

earnings by 5.0% and 9.1% respectively. As we are also raising

our valuation from 16x to 17x FY11F EPS, our fair value

improves from S$0.78 to S$0.91. As there is now an upside of

>10%, we upgrade our rating to BUY.

1000

1500

2000

2500

3000

3500

May-08

Aug-08

Nov-08

Feb-09

May-09

Aug-09

Nov-09

Feb-10

May-10

Aug-10

Nov-10

0.1

0.4

0.7

1.0

GoldenAgri

STI

(US$ m) FY08 FY09 FY10F FY11F

Revenue 2985.9 2293.7 3299.8 3688.7

EBITDA 587.3 383.1 566.1 775.3

P/NTA (x) 1.6 1.4 1.3 1.2

EPS (cts) 13.9 5.3 3.0 4.1

PER (x) 15.7 33.8 20.0 14.3


23/33


Sector Update

Golden Agri's Key Financial Data

EARNINGS FORECAST BALANCE SHEET

Year Ended 31 Dec (US$m) FY08 FY09 FY10F FY11F Year Ended 31 Dec (US$m) FY08 FY09 FY10F FY11F

Revenue 2,985.9 2,293.7 3,299.8 3,688.7 Cash 133.2 287.5 326.1 345.9

EBITDA 587.3 383.1 566.1 775.3 Other Current Assets 574.3 818.2 1036.7 1109.6

Depreciation & Amortisation -58.2 -68.3 -97.5 -111.3 Fixed Assets 971.0 1102.6 1358.4 1200.3

Bio-asset Revaluation 1,457.2 302.9 0.0 0.0 Total Assets 6825.5 7900.5 8478.6 8460.1

Operating Profit 1,986.3 617.7 468.6 664.0 Current Liabilities less Debt 238.4 410.3 493.0 474.6

Net Interest -35.4 -41.3 -51.2 -39.9 Debt 553.9 683.1 825.0 670.0

Associates 5.4 6.8 4.0 8.0 Other Long Term Llabilities 1326.3 1273.4 1320.0 1020.0

Exceptionals 20.1 -1.4 -6.1 0.0 Total Liabilities 2118.7 2366.7 2638.0 2164.6

Pre-tax Profit 1,947.1 593.1 465.3 662.0 Shareholders Equity 4613.7 5437.7 5737.1 6184.5

Net Profit 1,382.5 607.0 360.1 502.3 Total Equity and Liabilities 6825.5 7900.5 8478.6 8460.1

CASH FLOW

Year Ended 31 Dec (US$m) FY08 FY09 FY10F FY11F KEY RATES & RATIOS FY08 FY09 FY10F FY11F

Operating Profit 550.0 422.8 567.3 816.6 EPS (US cents) 13.9 5.3 3.0 4.1

Working Capital Changes 67.9 -36.1 -154.8 33.0 Core EPS (US cents) 3.8 1.8 3.0 4.1

Net cash from Operations 427.4 256.7 305.2 373.0 Core PER (x) 15.7 33.8 20.0 14.3

Capex -244.1 -256.2 -400.0 -250.0 Price/NTA (x) 1.6 1.4 1.3 1.2

Investing Cash Flow -341.0 -388.4 -356.8 -128.5 EV/EBITDA (x) 13.0 19.8 13.6 9.7

Change in Equity 0.0 216.5 0.0 0.0 Dividend yield (%) 1.0 0.6 0.6 0.6Net Change in Debt 16.7 78.1 141.9 -155.0 ROIC (%) 26.8 9.9 5.5 7.3

Financing Cash Flow -77.6 283.0 90.2 -224.6 ROE (%) 30.0 11.2 6.3 8.1

Net Cash Flow 8.7 154.3 38.5 19.8 Net gearing (%) 9.1 7.3 8.7 5.2

Ending Cash Balance 133.2 287.5 326.1 345.9 PE to growth (x) 0.3 -0.2 -0.5 0.4

Source: Company data, OIR estimates


24/33


Sector Update

Earnings to take flight in 2011

Strong 3Q10; earnings to accelerate in FY11. Noble Group(Noble) recently reported a strong set of 3Q10 results. Weare positive on the stock in anticipation of earnings accelerationin FY11, as the group begins to reap the fruits of its recentpipeline investments. As a recap, Noble beat expectations bydelivering a 78.7% YoY jump in 3Q10 revenue to US$14.9band a 40.6% YoY increase in gross profit to US$442.3m.Recurring net profit was flat YoY at US$131.1m. Sequentially,these represented a 15.6% improvement in revenue, and moresignificantly, a 178% jump in recurring net profit, demonstratingits sharp reversal from a lacklustre 2Q10. We expect Noble'searnings to continue to be buoyed by strong underlyingfundamentals for commodities such as energy and agriculture.The group has spent US$2.8b expanding its pipeline since2007 and several of these investments are nearing maturity,adding a further boost to earnings from 4Q10 onwards.

Performance buoyed by Agriculture and Energy. Noble'srobust 3Q10 performance was driven by its Agriculture andEnergy segments, which benefitted from stronger volumes andhigher prices amid stabilising economic conditions. Overall

gross profit margin contracted by 0.8ppt YoY (but expanded0.6ppt QoQ) due to higher revenue contribution from the Energysegment which entails lower margins. Core net profit margineased 0.7ppt (but gained 0.5ppt QoQ) to 0.9%. Agriculture,whose 2Q10 margins were hurt by challenging soybeanmarkets, surprised pleasantly with a record high gross profitof US$237.5m in 3Q10 as gross profit margin rebounded by2.3ppt YoY and 4.0ppt QoQ to 6.7%. Management expressedconfidence in this segment's FY11 performance as it has lockedin improved soy crushing margins.

Preferred pick within commodities sector. Noble hasreaffirmed its target of achieving US$1b in earnings over the

next three years, implying a 24% CAGR between FY09 andFY13. With its strong balance sheet, the group remains well-positioned to capture any investment opportunities that mayarise. While China's price controls may imply volatileagricultural margins in the near term, Noble's well-diversifiedbusiness model means that continued growth from othersegments and geographies will offset underperformance fromany single business unit. With earnings expected to bepropelled by pipeline investments coming on stream in 2011,Noble is among our preferred picks within the commoditiessector. We reiterate our BUY rating with S$2.59 fair valueestimate. Key risks that may impede the group's performanceinclude longer-than-expected gestation periods for its

investments, as well as continued USD/SGD weakness, whichcould lead to translation losses.

Noble Group14 December 2010

Maintain

BUYPrevious Rating: BUYClosing price (10 Dec): S$2.12Fair Value : S$2.59

Reuters Code NOBG.SI

ISIN Code N21

Bloomberg Code NOBL SP


Mkt Cap (S$m/US$m) 12,776 / 9,768

Major Shareholders

Fleet Overseas (NZ) 23.5%


Daily Vol 3-mth (000) 28,011

52 Wk Range 1.540 - 2.232


1000

1500

2000

2500

3000

3500

4000

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

0.2

0.7

1.2

1.7

2.2

2.7

3.2

3.7

Noble

STI

(US$ m) FY08 FY09 FY10F FY11F

Revenue 36,090.2 31,183.1 50,282.0 60,798.8

Gross Prof it 1 ,347.6 1,105.0 1,357.6 1,702.4

P/NAV (x) 2.8 2.1 2.9 2.5

EPS (cts) 17.5 14.5 8.6 11.7

PER (x) 12.0 14.6 21.6 13.9


25/33


Sector Update

Noble Group's Key Financial Data


Year Ended 31 Dec (US$m) FY08 FY09 FY10F FY11F As at 31 Dec (US$m) FY08 FY09 FY10F FY11F

Revenue 36,090.2 31,183.1 50,282.0 60,798.8 Cash and cash equivalents 1,318.2 937.3 2,700.7 2,451.2

Gross Profit 1,347.6 1,105.0 1,357.6 1,702.4 Inventories 1,757.0 3,414.6 3,519.7 3,951.9

Other income 103.9 125.5 70.4 60.8 Property, plant, equipment 1,003.8 1,522.7 2,016.5 2,295.7

Operating expenses -567.6 -422.9 -597.4 -715.0 Total assets 8,152.6 10,655.0 13,831.5 15,211.4

EBIT 883.9 807.6 830.7 1,048.2 Debt 2,556.1 3,541.1 5,833.7 5,833.7

Associates & JV -15.8 -24.8 -6.8 -6.8 Current liabilities excluding debt 3,600.4 3,937.0 4,596.2 5,435.8

PBT 676.0 620.2 584.0 793.1 Total liabilities 6,291.8 7,616.8 10,480.2 11,330.4

PAT 579.7 555.1 519.7 705.9 Shareholders equity 1,851.1 2,955.4 3,344.3 3,872.6

Reported net profit 577.3 556.0 518.5 704.4 Total equity 1,860.9 3,038.2 3,351.2 3,881.1Recurring net profit 437.8 429.7 453.7 704.4 Total equity and liabilities 8,152.6 10,655.0 13,831.5 15,211.4

CASH FLOW


Op profit before working cap. 958.1 877.5 940.6 1,174.0 EPS (US cents) 17.5 14.5 8.6 11.7

Working cap, taxes and interest 512.3 -1,687.1 -828.0 -847.5 NAV per share (US cents) 57.6 79.0 55.7 64.5

Net cash from operations 1,470.4 -809.6 112.5 326.5 PBT margin (%) 1.9% 2.0% 1.2% 1.3%

Purchase of PP&E -506.2 -626.9 -600.0 -400.0 Net profit margin (%) 1.6% 1.8% 1.0% 1.2%

Investing cash flow -584.4 -1,136.9 -512.1 -400.0 PER (x) 12.0 14.6 21.6 13.9

Financing cash flow -176.9 1,399.0 2,163.0 -176.1 Price/NAV (x) 2.8 2.1 2.9 2.5

Net cash flow 709.1 -547.5 1,763.4 -249.5 EV/EBITDA (x) 11.4 13.0 13.6 11.2

Cash at beginning of year 471.1 1,175.8 619.8 2,383.2 Dividend yield (%) 2.7% 2.2% 1.3% 1.8%

Cash at end of year 1,175.8 619.8 2,383.2 2,133.6 ROE (%) 31.2% 18.8% 15.5% 18.2%

Cash and cash equivalents 1,318.2 937.3 2,700.7 2,451.2 Net gearing (%) 66.9 88.1 93.7 87.3



26/33


Sector Update

Good start to FY11; growth strategy intact . Olam

International (Olam) kicked off its FY11 on a strong note and

remains poised for sustained medium-term growth, driven by

robust underlying fundamentals for agricultural commodities,

coupled with volume and margin growth on the back of the

group's ongoing expansion initiatives. To recap, Olam posted

its 1Q11 results with a 30.6% YoY growth in revenue to S$2.5b.

Net profit jumped 56.2% YoY to S$29.7m. We are projecting

earnings CAGR of 17% over the next two years and believethat profits may surpass expectations should the group embark

on more M&A activity with near-term earnings accretion.

Beyond structural bottlenecks which are expected to keep

physical markets tight in the near term, we expect Olam to

grow its earnings in the medium term through market share

gains and margin expansion.

Volume growth, improved profitability to drive

performance. Olam's 1Q11 growth was supported by broad-

based revenue and volume growth across all segments. Overall

volume grew 21.1% as the group gained market share amid

industry consolidation. Margin expansion further boosted the

group's bottomline with Gross Contribution (GC) / ton and NetContribution (NC) / ton growing 14.4% and 16.0% YoY,

respectively, demonstrating the group's success in extracting

greater value along the supply chain. Management sees room

for margin expansion via the provision of value-added services.

As the industry continues to consolidate in 2011, we see room

for Olam to further expand its market share.

Financial flexibility offers strategic advantage. As the

industry continues to consolidate in 2011, companies that are

nimble to capitalize on opportunistic investments will have a

strategic advantage over their peers. As such, we believe that

Olam, with its ready access to capital, will extend itsdominance against this landscape. The group's balance sheet

remains sound with adjusted net gearing of 0.59x. Credit

facilities remain available to the group, which recently

completed a US$250m bond issue and US$350m loan facility

and is backed by Temasek Holdings as a strategic shareholder.

Olam has embarked on several investments, with the most

recent being the setting up of a sugar refinery in Nigeria and

the construction of a fertilizer complex and development of

palm plantations in Gabon. Such investments should build a

larger volume and revenue base to support its sustained long-

term growth. We maintain our BUY rating on Olam. Our fair

value estimate remains at S$3.53.

Strategically positioned amid industry consolidation

Olam International Ltd14 December 2010

Maintain

BUYPrevious Rating: BUYClosing price (10 Dec): S$3.10Fair Value : S$3.53

Reuters Code OLAM.SI

ISIN Code O32

Bloomberg Code OLAM SP


Mkt Cap (S$m/US$m) 6,716 / 5,135

Major Shareholders

Kewalram Singapore Ltd 21.9%


Daily Vol 3-mth (000) 7,555

52 Wk Range 2.180 - 3.410


1000

1500

2000

2500

3000

3500

4000

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Olam Int'l

STI

(S$ m) FY09 FY10 FY11F FY12F

Revenue 8,587.9 10,455.0 11,499.6 12,653.1

Gross Profit 1,746.4 2,230.4 2,391.9 2,631.8P/NAV (x) 5.1 3.5 3.3 2.9

EPS (cts) 10.6 13.5 14.6 17.4

PER (x) 29.2 23.0 21.2 17.8


27/33


Sector Update

Exhibit 17: Segmental volumes, 1Q07 - present

-

200,000

400,000

600,000

800,000

1,000,0001,200,000

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

1Q10

3Q10

1Q11

metricton

E dible N uts, Spices & B eans C onfectionery & Bev erage Ingredients

Food staples & Packaged Foods Industrial Raw M aterials

Source: Company, OIR

Exhibit 18: NC/ton by segment, 1Q07 - present

-

50

100

150

200

250

300

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

1Q10

3Q10

1Q11

NC/ton(S$)

Edible N uts , Spic es & Beans C onfec tionery & Bev erage IngredientsF ood s taples & Pac kaged F oods Indus trial Raw M aterials

Source: Company, OIR


28/33


Sector Update

Olam's Key Financial Data


Year Ended 30 Jun (S$m) FY09 FY10 FY11F FY12F As at 30 Jun (S$m) FY09 FY10 FY11F FY12F

Sale of goods 8,587.9 10,455.0 11,499.6 12,653.1 Cash and cash equivalents 533.8 671.5 600.0 466.6

Other income 138.5 241.2 0.0 0.0 Inventories 1,966.4 2,537.9 2,759.9 3,036.7

Gross profit 1,746.4 2,230.4 2,391.9 2,631.8 Property, plant, equipment 517.4 1,054.2 1,061.3 1,067.7

Operating expenses -1,290.3 -1,595.6 -1,766.3 -1,938.9 Total assets 5,415.4 7,799.5 7,997.0 8,330.1

EBIT 456.1 634.7 625.6 693.0 Debt 3,174.2 4,503.0 4,478.1 4,455.7

Finance costs -239.2 -227.5 -268.7 -267.3 Current liabilities excluding debt 1,132.5 1,396.0 1,385.6 1,463.4

PBT 258.0 420.2 356.9 425.6 Total liabilities 4,369.5 6,028.8 5,993.5 6,048.8

PAT 252.0 359.7 310.5 370.3 Shareholders equity 1,045.8 1,771.9 2,004.7 2,282.5

Reported net profit 252.0 359.5 310.5 370.3 Total equity 1,045.9 1,770.7 2,003.6 2,281.3

Recurring net profit 182.2 271.8 310.5 370.3 Total equity and liabilities 5,415.4 7,799.5 7,997.0 8,330.1

CASH FLOW

Year Ended 30 Jun (S$m) FY09 FY10 FY11F FY12F KEY RATES & RATIOS FY09 FY10 FY11F FY12F

Op profit before working cap. 331.0 531.3 678.5 746.5 EPS (S cents) 10.6 13.5 14.6 17.4

Working cap, taxes and interest 96.6 -1,588.2 -587.5 -704.9 NAV per share (S cents) 61.0 87.6 94.4 107.4

Net cash from operations 427.6 -1,056.9 91.0 41.6 PBT margin (%) 3.0 4.0 3.1 3.4

Purchase of PP&E -208.1 -65.4 -60.0 -60.0 Net profit margin (%) 2.9 3.4 2.7 2.9

Investing cash flow -544.1 -750.2 -60.0 -60.0 PER (x) 29.2 23.0 21.2 17.8

Financing cash flow 198.8 1,984.2 -102.5 -115.0 Price/NAV (x) 5.1 3.5 3.3 2.9

Net cash flow (Incl forex) 104.4 235.3 -71.6 -133.4 EV/EBITDA (x) 17.9 14.4 14.9 13.7

Cash at beginning of year 164.3 268.7 503.9 432.4 Dividend yield (%) 1.1 1.5 1.2 1.4

Cash at end of year 268.7 503.9 432.4 299.0 ROE (%) 24.1 20.3 15.5 16.2

Cash and cash equivalents 533.8 671.5 600.0 466.6 Net gearing (%) 252.5 216.2 193.4 174.8



29/33


30/33


Sector Update

Straits Asia Resources' Key Financial Data


Year Ended 31 Dec (US$m) FY08 FY09 FY10F FY11F As at 31 Dec (US$m) FY08 FY09 FY10F FY11F

Revenue 585.2 748.4 728.5 953.6 Cash and cash equivalents 170.6 31.8 104.4 91.3

Cost of sales -357.7 -448.0 -550.2 -588.3 Other current assets 72.3 164.5 155.4 200.5

Gross profit 227.5 300.3 178.3 365.3 Property, plant, equipment 110.1 121.8 198.6 231.3

Other income 6.3 -1.0 3.7 3.7 Total assets 874.0 986.5 1,127.6 1,192.4

Operating expenses -37.8 -57.5 -40.1 -52.5 Debt 287.5 206.5 286.5 285.9

EBIT 196.0 241.8 142.0 316.6 Current liabilities excluding debt 141.2 155.7 166.1 182.8

Finance cost -14.8 -22.9 -11.5 -11.4 Total liabilities 498.2 514.4 621.6 604.6

PBT 181.2 218.9 130.5 305.2 Shareholders equity 375.7 472.1 506.1 587.8

Income tax -56.8 -85.4 -45.7 -100.7 Total equity 375.7 472.1 506.1 587.8

Net profit 124.4 133.5 84.8 204.5 Total equity and liabilities 874.0 986.5 1,127.6 1,192.4

CASH FLOW


Op profit before working cap. 180.1 131.1 147.1 234.1 EPS (US cents) 11.4 12.0 7.5 18.1

Working cap, taxes and interest 11.4 49.7 11.5 -23.9 NAV per share (US cents) 34.4 41.8 44.8 52.1

Net cash from operations 191.5 180.7 158.6 210.2 PBT margin (%) 31.0% 29.3% 17.9% 32.0%

Purchase of PP&E -72.6 -82.3 -140.0 -100.0 Net profit margin (%) 21.3% 17.8% 11.6% 21.4%

Investing cash flow -65.1 -154.4 -140.0 -100.0 PER (x) 16.0 15.1 24.1 10.0

Financing cash flow 15.0 -165.1 54.1 -123.3 Price/NAV (x) 5.3 4.3 4.0 3.5

Net cash flow 141.4 -138.8 72.6 -13.1 Dividend yield (%) 3.8 3.9 2.5 6.0Cash at beginning of year 29.1 170.6 31.8 104.4 ROE (%) 33.1% 28.3% 16.8% 34.8%

Cash at end of year 170.6 31.8 104.4 91.3 Net gearing (%) 31.1% 37.0% 36.0% 33.1%

Cash and cash equivalents 170.6 31.8 104.4 91.3 Interest cover (x) 13.3 10.5 12.4 27.7



31/33


Sector Update

Wilmar Intl Ltd14 December 2010

Downgrade to

HOLDPrevious Rating: BUYClosing price (10 Dec): S$5.95Fair Value : S$6.48

Reuters Code WLIL.SII

ISIN Code F34

Bloomberg Code WIL SP


Mkt Cap (S$m/US$m) 41,558 / 29,965

Major Shareholders

Wilmar Intl 40.6%


Daily Vol 3-mth (000) 10,926

52 Wk Range 5.250 - 7.290

Carey Wong(65) 6531 9808e-mail: [email protected]

Near-term margin squeeze may continue

Margin squeeze may continue. Wilmar International Limited(WIL), after posting a pretty muted set of 3Q10 results recently,could continue to face margin squeeze in its edible oil and oilseeds crushing business in the near to even medium termdue to the persistent rise in raw material prices. As a recap,although its 3Q10 revenue jumped 23.3% YoY (+14.9% QoQ),its gross profit tumbled 40.6% YoY (-39.8% QoQ), with thecompany attributing the slide in margins to "a tough operatingenvironment" for its Oilseeds and Grains business (coupled

with "untimely" purchases of raw materials) as well as lowermargins for Palm and Laurics and Consumer Products.

China looking to cap food inflation. And because itsconsumer products are typically deemed to be "essential fooditems", it could also face difficulties in passing on the higherraw material prices to consumers. We note that this usuallycomes in the form of official price caps imposed bygovernments as a means to control inflation.

Already in China, where WIL is one of the largest soybeancrushers and edible oil consumer pack sellers, the Kunminggovernment has reportedly imposed price controls and asked

food producers to apply for official approval before making anyprice changes1 ; this after the PRC's consumer price index jumped 4.4% in Oct and 5.1% in Nov, with food prices up10.1% and 11.7% respectively. And with the Chinese NewYear festivities coming up in early Feb, there could be a goodchance that these controls could persist for a good while.Consumer products made up 16% of WIL's FY09 revenue,and probably less than 10% of net profit.

Diversification to bring long-term growth. Diversificationseems to be the theme to drive long-term growth. We notethat WIL has recently inked a deal to sell a 20% stake in itsflour milling operations in China to FFM Berhad (price is still

being worked out) while simultaneously buy a 20% stake inthe Malaysian flour miller for RMB378.1m (US$120m). WIL isalso expanding into the sugar business via the A$1.8bacquisition of Sucrogen and growing of its own sugarplantations in Indonesia.

Maintain HOLD with revised S$6.48 fair value. Still, wesee the need to revise down our FY11F earnings by 8.0% toaccount for the risk of an extended period of margin squeeze.As such, our fair value drops from S$7.04 to S$6.48, even aswe keep our valuation unchanged at 18x FY11F EPS. MaintainHOLD in view of its more positive long-term outlook.

1http://www.bloomberg.com/news/2010-12-04/wal-mart-among-companies-

facing-china-price-controls-update1-.html

1000

1500

2000

2500

3000

3500

May-08

Aug-08

Nov-08

Feb-09

May-09

Aug-09

Nov-09

Feb-10

May-10

Aug-10

Nov-10

1.02.0

3.0

4.0

5.0

6.0

7.0

8.0

Wilmar

STI

IUS$ m) FY08 FY09 FY10F FY11F

Revenue 29145.2 23885.1 27220.4 30969.2

EBITDA 1862.6 2057.0 1725.1 2041.2EPS (cts) 24.0 29.5 22.9 27.7

PER (x) 19.1 15.5 20.0 16.5

Price/NTA (x) 5.2 4.2 3.6 3.1


32/33


Sector Update

Wilmar's Key Financial Data


Year Ended 31 Dec (US$m) FY08 FY09 FY10F FY11F As of 31 Dec (US$m) FY08 FY09 FY10F FY11F

Revenue 29,145.2 23,885.1 27,220.4 30,969.2 Cash 2,893.1 5,134.9 4,638.4 5,248.3

EBITDA 1,862.6 2,057.0 1,725.1 2,041.2 Other Current Assets 5,400.2 7,735.7 7,794.6 8,464.5

Depreciation & amortisation -207.9 -252.3 -364.0 -368.9 Fixed Assets 3,252.2 3,919.3 4,755.3 4,386.4

Operating Profit 1,654.7 1,821.7 1,361.0 1,672.3 Other long term assets 6,323.4 6,658.9 6,658.9 6,658.9

Net interest -254.0 -43.4 -28.2 5.3 Total Assets 17,868.9 23,448.8 23,847.1 24,758.0

Associates 111.2 46.2 150.0 200.0 Current Liabilities less Debt 2,245.7 1,994.8 2,198.1 2,348.1

Exceptionals 0.0 0.0 0.0 0.0 Debt 5,283.6 9,579.7 8,682.0 7,871.1

Pre-tax profit 1,789.3 2,294.4 1,782.8 2 ,177.6 Other Long Term Liabilities 364.3 462.6 354.1 454.2

Tax -232.2 -324.1 -249.6 -326.6 Shareholders Equity 9,606.5 10,931.1 12,063.7 13,452.5

Net Profit 1,531.0 1,882.0 1,464.5 1,768.0 Total Equity and Liabilities 17,868.9 23,448.8 23,847.1 24,758.0

CASH FLOW


Profit Before Tax 2,088.7 2,136.7 2,175.1 2,541.2 EPS (US cents) 24.0 29.5 22.9 27.7

Working Capital Changes 1,629.9 -2,404.1 210.1 -519.9 Fully Diluted EPS (US cents) 23.4 28.7 22.4 27.0

Net Cash from Operations 3,230.9 -520.4 2,465.6 1,926.4 PER (x) 19.1 15.5 20.0 16.5

Capex -1,012.2 -973.9 -1,200.0 -1,000.0 Price/NTA (x) 5.2 4.2 3.6 3.1

Investing Cash flow -1,296.0 -1,282.4 -1,262.1 -856.3 EV/EBITDA (x) 17.0 16.4 19.3 15.6

Change in Equity 0.0 273.6 0.0 0.0 Dividend Yield (%) 1.3 1.3 1.1 1.3

Net Debt Change 245.8 4,024.7 -897.7 -810.9 ROIC (%) 10.3 9.2 7.1 8.3

Financing Cash Flow -1,345.9 1,161.2 -1,255.3 -1,142.9 ROE (%) 15.9 17.2 12.1 13.1

Net Cash flow 588.9 -641.6 -51.7 -72.9 Net Gearing (%) 24.9 40.7 33.5 19.5

Ending Cash Balance 2,893.1 5,134.9 4,638.4 5,248.3 PE to Growth (x) 0.2 0.7 -0.9 0.8



33/33

Sector Update

For OCBC Investment Research Pte Ltd

Carmen Lee

SHAREHOLDING DECLARATION:The analyst/analysts who wrote this report holds NIL shares in the above security.

RATINGS AND RECOMMENDATIONS:OCBC Investment Researchs (OIR) technical comments and recommendations are short-term and tradingoriented.- However, OIRsfundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-monthinvestment horizon. OIRs Buy = More than 10% upside from the current price; Hold = Trade within +/-10%from the current price; Sell = More than 10% downside from the current price.- For companies with less than S$150m market capitalization, OIRs Buy = More than 30% upside from thecurrent price; Hold = Trade within +/- 30% from the current price; Sell = More than 30% downside from thecurrent price.

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