Maybank Kim Eng Research 2015-07-23: First Resources - Small Acquisition at Fair Price. Maintain BUY.

Small Acquisition at Fair Price 

  • Acquires 6k ha of young planted nucleus area in West Kalimantan for USD11,000 EV/ planted ha. Fair price, in our view. 
  • Expect no near-term EPS accretion. 
  • Maintain BUY & SGD2.22 TP on 13x 2016 P/E pending 2Q15 results. We earlier expected catalysts from 3-year forward 12% FFB CAGR. 

What’s New 

  • FR has acquired 100% of Pacific Agri Resources Pte Ltd from a third party for USD28.6m cash. Pacific Agri owns 95% of PT Falcon Agri Persada, a private oil-palm planter in West Kalimantan. 
  • We understand that PT Falcon has c.6,000 ha of planted nucleus area with a weighted average tree age of 3.3 years old. Its estates are almost evenly split between mature and immature planted areas. 

What’s Our View 

  • We are generally positive on this. The price and plantation size are small relative to FR’s USD2b assets and 166,000 ha of planted nucleus area. 
  • Details are limited, but we understand that the purchase consideration was around USD11,000 EV/planted ha, a price we deem fair against recent market transactions. 
  • The acquisition will be funded by internal resources. 
  • Net gearing was low at 17% as at 31 Mar 2015. 
  • Still, given PT Falcon’s young estates, we believe they will not add much to EPS after borrowing costs in the next 2 -3 years, until the trees reach prime maturity in 4-5 years’ time. 
  • FR has another 47,200 ha of oil-palm planted area in West Kalimantan. 
  • We see scope for more effective and efficient management with greater economies of scale. 
  • Our BUY call and TP of SGD2.22 on 13x 2016 P/E are unchanged, pending the release of 2Q15 results. 

(Ong Chee Ting, CA)

Source: http://www.maybank-ke.com.sg