First Resources - FFB Recovery Expected In FY17
- First Resources saw a decent recovery in its FFB output in 4Q16, which led to a moderation of decline for FY16 to -6.4%.
- Going into 2017, we expect FFB output to grow by 8.3% YoY, as productivity returns to normal.
- First Resources retains its status as one of the lowest cost producers with an estimated unit cost of USD215.00/tonne in 2016. We expect this to remain relatively flat in FY17, as the FFB yield improvements would offset the increase in wages and fertiliser costs.
- Maintain NEUTRAL, tweaking TP to SGD1.90 (from SGD2.00, 2% upside).
Decent recovery in FFB output in 4Q16, rising 12% QoQ from 3Q and 14% YoY.
- This led to a decline in FY16 FFB output, moderating to -6.4% (from -14% in 9M16). This is better than management’s guidance of -10% YoY decline, but in line with our projection of -7% YoY for FY16.
FFB growth to return to normal from FY17.
- Going forward, we expect First Resources’ FFB growth to return to normal from FY17, as its trees fully recover from the El Nino impact.
- We expect the company to register FFB growth of 5-10% pa for FY17-18, as there is not much contribution from new areas coming into maturity over the next few years.
CPO price rose 8.6% YoY.
- Its 4Q16 transacted CPO price of USD629/tonne was 3.1% higher QoQ, bringing FY16’s average price to USD587/tonne, in line with our projected USD578/tonne (ex-export tax).
- For every MYR100/tonne change in CPO price, we estimate its earnings would be impacted by 4-5% pa..
Downstream margins fell back to the red in 4Q16.
- Its downstream division reversed into negative territory, on the back of higher feedstock costs.
- We expect downstream sales volumes to remain relatively robust (+55.6% in FY16), although margins would remain weak due to the high feedstock costs.
- After updating for FY16 results, we reduce FY17F-18F earnings by 3-4% YoY and introduce FY19 forecasts.
- Our TP thus moves to SGD1.90 (from SGD2.00), based on 2017F P/E of 19x and EV/ha of USD12,000. This is in line with its peers, which trade in the USD10,000- 15,000/ha range.
- Its large exposure to Riau (67%) puts it at risk in the face of weak weather-led productivity, while valuations look fair at current levels.