Internal developments include investments in “higher-value” savoury solutions in the Philippines and dairy ingredients in New Zealand which indicate ofi’s focus on building a differentiated food ingredients and solutions platform rather than a traditional agricultural processor.
The way Hussaini sees it, the joint venture with WNC Capital Holdings in the Philippines to manufacture proprietary seasonings, marinades, dry mixes and customised savoury solutions, spotlights ofi’s shift away from lower-margin cost-plus manufacturing towards higher-value customer solutions.
Meanwhile, in New Zealand, ofi’s second spray dryer is set to start operations in the second half of the year, producing higher value milk protein concentrates for nutrition and beverage applications. With recent capex now entering the commercialisation phase, management's focus has shifted toward improving utilisation and margins, according to Hussaini.
He expects a 9% compound annual growth rate for ebit, driven by higher-value ingredients and solutions (I&S) segment rather than volume-led global sourcing (GS). For context, I&S focuses on processing raw crops into functional food products and ingredients while the GS segment focuses on crop sourcing.
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Externally, with “sharp” corrections in coffee and cocoa prices, ofi’s working capital needs and financing costs should experience reduction, enhancing cash conversion and return on capital, believes Hussaini.
Cocoa has fallen 60% from its peak price of nearly US$13,000 ($16,800) to hover around US$4,200 per metric tonne currently while coffee has dropped approximately 30% from more than US$420 to less than US$280 per pound .
“The next phase of earnings growth will be driven by stronger capital efficiency, richer product mix and higher utilisation rather than commodity inflation,” states Hussaini. “Helped by high-single-digit EBIT growth and lower financing charges, we expect earnings to grow at 58% CAGR over 2025-2028.”
In addition, the proceeds from the diversification of Mindsprint and ARISE imply an 18% yield if fully distributed, while the other remaining subsidiaries grouped under Olam Global Holdco could add 6-12% annual special yield over FY2027-2030.
Given the strengthening outlook, Hussaini believes the market is undervaluing Olam. He suggests that the market is seeing Olam as a distressed cyclical business rather than a scaled global ingredients franchise. Olam is currently trading at around a 2.6 to 3.3 enterprise value to ebit ratio. This is lower than the 8-15 times for global ingredients peers.
To Hussaini, Olam is one of the most compelling capital-management opportunities within the Temasek portfolio, with meaningful scope for both valuation rerating and shareholder returns.
Shares in Olam are trading at $1.29 at around 11.20am on June 19, up one cent or 0.8%.
