First Resources (FR SP) - Exceeded expectations
4Q beat our and consensus forecasts
- Headline and core results exceed expectations for 2016.
- For 2017, we expect FFB output recovery to drive +13% EPS growth. However, trading at 16x 2017 PER, the growth prospects have been partly priced in.
- Given limited upside to our unchanged TP of SGD1.97 on 17x 2017 PER, its 5- year mean, FR remains a HOLD.
Strong end to 2016
- 2016 headline PATMI was a strong USD125m (+31% YoY), partly lifted by USD13m in FV gain on biological assets. Stripping this, 2016 core PATMI was USD115m (+21% YoY), which met 108%/107% of our/consensus estimates.
- The positive surprise in 4Q16 came from the upstream division which benefited from high FFB nucleus output (+13% YoY, +27% QoQ) and good CPO ASP of USD629/t (+36% YoY, +3% QoQ).
Low cash cost of production at USD215/t (+5% YoY)
- For 2016, FFB output fell 6% YoY but was more than offset by higher CPO ASP (+9% YoY). Nonetheless, as FFB yield fell 12% YoY to 16.8t/ha in 2016, FR’s unit cash cost of production rose 5% YoY to USD215/t.
- As for downstream, it suffered negative EBITDA margins of USD2/t (vs positive margin of USD29/t a year ago).
2017’s growth prospects priced in
- Following the results, we have tweaked our financial parameters which led to -1%/-1% change in our 2017-18 PATMI forecasts and we also introduce our 2019 forecast.
- 2017’s EPS growth of 13% will be mainly driven by our expected +22% YoY rebound growth in FFB output.
- We are keeping our 2017 net CPO ASP unchanged at USD558/t (-5% YoY).
- Risks to our forecasts include CPO price volatility and weather anomalies impacting output.
- A final DPS of 2.375 Singapore cents was proposed, bringing 2016 total DPS to 3.0 cents.