First Resources (FR SP) - Expect good 4Q16 results
2017’s yield recovery is on the way
- 4Q16 results will likely come in above ours and consensus estimates largely on better-than-expected output. But good share price run up since mid-2016 have largely priced in the positives as First Resources (FR) currently trades at its 5-year historical mean of 17x PER.
- We are keeping our forecasts pending fresh guidance on 2017 outlook. The stock is a HOLD with an unchanged TP of SGD1.97 on 17x 2017 PER.
- We prefer Bumitama Agri (BAL SP, BUY, TP: SGD0.97) in the sector.
4Q16 FFB output came in above expectations
- Last night, FR announced its 4Q16 FFB yield rose 8% YoY to 5.4t/ha, a positive sign that the lagged impact of 2015’s EL Nino may have ended after three consecutive quarters of double-digit YoY decline.
- In terms of output, 4Q16 FFB nucleus output of 766,298 MT (+15% YoY, +12% QoQ) brings 2016 FFB output to 2,367,767 MT (-6% YoY) which met 103% of our full-year forecasts. The numbers also beat FR’s earlier guidance of a 10% YoY decline in FFB output for 2016.
Expect better-than-expected 4Q16 results
- In 4Q16, MPOB’s spot CPO price averaged USD682/t. Taking into account the palm oil export levies imposed by the Indonesian government (since 16 Jul 2015), the net CPO ASP received by FR is estimated at ~USD640/t (+38% YoY, +5% QoQ).
- Combined with improved QoQ output, we estimate FR to report 4Q16 core PATMI of ~USD52m (9M16: USD67m), bringing fullyear core PATMI to USD119m; +12% / +14% above our/ consensus full-year forecasts.
Yield recovery priced in
- We believe the market has largely priced in the positives of FR’s yield recovery as reflected in the stock’s 17x 2017 PER currently.
- But what remains unknown at this juncture is the quantum of a potential one-off tax credits that FR may recognise in 4Q16 as highlighted in the previous quarter. These credits relate to special tax incentives for fixed asset revaluation in Indonesia.