Olam International, a trader of agricultural commodities partly owned by Singapore’s Temasek Holdings, said third-quarter profit rose about 2.6% as it started plantations and food-processing units.

Net income rose to $89.3 million, or 4.42 cents a share, in the three months ended March 31 from $87 million, or 5.08 cents, a year ago when there were exceptional gains, the Singapore-based company said in a stock exchange statement. Sales rose 18% to $2.7 billion. Growth targets for this financial year will be met, it said.

 

Olam, which received a $437.5 million equity investment from Temasek, last year, is expanding into production and farming to augment its trading activities. The earnings were better than expected and the company has enough resources for growth, analyst Ben Santoso said.

 

Credit is “the blood flow for this company,” said Santoso, an analyst at DBS Vickers Securities (Singapore). “The only risk is if banks don’t trust each other and there’s a freeze on letters of credit. I don’t think that will happen and Olam has S$2.7 billion of unused credit line.”

 

Olam shares were unchanged at $2.52 at the end of trading on the Singapore stock exchange. The shares have dropped 5.3% this year, compared with a 1% decline in the benchmark Straits Times Index. The results came after the market closed.

 

The company aims to double earnings every three years and may invest in cocoa processing in the next quarter, Chief Executive Officer Sunny Verghese said. Confectionary and beverage ingredients such as cocoa and sugar as well as food staples represent the bulk of Olam’s sales.

 

“We are tracking ahead of plan,” Verghese told analysts at a briefing today in Singapore. “We’ve never been in a stronger position than we are now.”

 

Cocoa traded in London averaged 2,234 pounds ($4,555) a metric ton in the January-to-March quarter, compared with 1,880 pounds a year ago. Raw sugar in New York averaged 24.26 cents a pound in the period, up from 12.79 cents. Rough rice futures rose to an average US$13.67 a ton from US$12.70 a year ago.

 

The demand for cotton is increasing in China and India as well as in the more developed markets, Verghese said.

 

“The bulk of margin improvement should come from the edible nuts category, with increasing contribution from tomato processing,” Nomura Singapore Ltd. analysts Tanuj Shori and Ken Arieff Wong had said in an April 21 report. Nomura had forecast net income of $85.4 million.

 

The net debt-to-equity ratio dropped to 1.88 times for the first nine months of the year, compared with 2.15 times in the last fiscal year, the company said today in a presentation to analysts. Olam had $4.33 billion of debt at the end of March, it said.

 

Olam raised US$1.75 billion ($2.41 billion) last year through a combination of convertible bonds, term loans and equity to fund acquisitions. While there are no plans to sell shares, the company will continue to change the debt-mix, Verghese said, without specifying how much Olam may raise or re-finance.

 

In January, Olam agreed to take over Nigerian wheat miller Crown Flour Mills Ltd. for US$107.6 million.

 

Food companies including Noble Group and Olam “capitalized on the recent economic downturn by enlarging their presence in key markets with acquisitions of distressed assets,” according to an OCBC Investment Research report on April 27.

 

Investors can “expect such acquisitions to boost medium- term earnings growth,” the report said, which advised investors to buy Olam stock with a fair value of $3.36 a share.