CIMB Research 2015-07-22: First Resources Ltd - Adding estates and 2Q preview. Remain ADD.

Adding estates and 2Q preview 

  • First Resources has acquired PT Falcon Agri, an Indonesian planter with 6,000ha of planted oil palm estates, for an estimated US$11,000/ha, which we view as fair. 
  • Meanwhile, we expect the group to meet our expectations by delivering a core net profit of US$34m when it releases its 2Q results on 13 Aug. 
  • The stock remains an Add due to its young estates and strong management. 
  • Our target price stays at S$2.44, based on 15.3x or its historical average P/E. 

What Happened 

  • First Resources has acquired a 100% stake in Pacific Agri Resources Pte Ltd. Pacific Agri, an investment holding company incorporated in Singapore, owns 95% interest in PT Falcon Agri Persada, with the remaining 5% to be acquired by First Resources’ indirect subsidiary, PT Pancasurya Agrindo. 
  • PT Falcon is engaged in oil palm plantation business in West Kalimantan. The consideration for the acquisitions is approximately US$28.6m and was arrived at on a willing buyer and willing seller basis. 

What We Think 

  • We gathered that PT Falcon owns around 6,000ha of planted oil palm estates in West Kalimantan and some unplanted landbank. The estates are located near First Resources’ estates in West Kalimantan. 
  • As such, the group will be able to derive some synergies due to better economies of scale in the location. 
  • We understand that First Resources paid an EV/ha of around US$11,000 for the planted estates, which we think is fair and in line with the recent market transactions for estates in Indonesia of US$8,000-13,000 per ha (excluding FGV’s proposal to buy 37% of Eagle High at US$17,400 per ha). 
  • The acquired estates are young with a weighted average age of only 3.3 years. 
  • This acquisition will help raise the group’s planted nucleus oil palm area by 3.5% from 167.7k ha to 173.7k ha. 
  • Based on our calculations, the group should have no issue funding the acquisition from internal funds, which could raise the group’s net gearing ratio from 0.17x to 0.24x. 

What You Should Do 

  • Overall, we are neutral on this news and project the acquisitions to be earnings neutral in the current financial year. 
  • First Resources is due to release its results on 13 August. 
  • We expect 2Q results to be stronger on a qoq basis due to higher FFB output (+10% qoq, 20% yoy). 
  • We estimate a 2Q15 core net profit of around US$34m (+17% qoq), which would bring its 1H15 net profit to around US$63m (48% of our full-year estimate). 
  • We maintain our Add rating and target price of S$2.44, based on 15.3x or its historical average P/E.

(Ivy NG Lee Fang, CFA)

Source: http://research.itradecimb.com/