FIRST RESOURCES LIMITED
Eb5.SI
Take advantage of recent sell-off
- 2Q15 earnings of US$28.6m were below our/consensus forecasts on annualised basis. S$0.0125 interim DPS declared
- Earnings were dragged by falls in Refining & Processing EBITDA and CPO ASP
- FY15F/16F earnings revised by -8%/-3% to adjust for lower forecast downstream volume, lower CPO ASP
- Upgrade to BUY with revised TP of S$2.04 (based on DCF)
2Q15 earnings below.
- Reported 2Q15 earnings came in at US$28.6m (+10% y-o-y; +3% q-o-q) – taking 1H15 earnings to US$56.3m (-21% y-o-y) – representing 35% of our FY15 target (vs. 45% average historical).
- Underperformance was mainly due to lower-than-expected Refining & Processing EBITDA, which dropped 46% q-o-q (-95% y-o-y). This reflects weaker margins (vs. 2Q14) – given the drop in higher-margin biodiesel production YTD.
- A 12% sequential expansion in Plantations EBITDA to US$59.0m partially offset this – thanks to better-than-expected ASP (vs. domestic spot).
- 2Q15 top line expanded 6% y-o-y (23% q-o-q) to US$118.8m, driven by volume expansion in both Refinery & Processing (+26% yo-y; +196% q-o-q) and CPO sales (+29% y-o-y; +15% q-o-q).
Output to decelerate in 2H15.
- Including smallholders, FR produced 632k MT of own FFB (+20% y-o-y) in 2Q15, which translated to FFB yield of 4.6MT/ha (+10% y-o-y; +10% q-o-q). We understand rainfall in Riau is currently below normal, and that 2H15 output growth should decelerate given 2H14’s high base.
- New estates plantings YTD (including smallholders) reached 3,816ha (representing 49% of our initial FY target of 8kha) – excluding newly acquired estates. The group is now guiding new planting of 5-7k ha this year. With this, we adjusted our FY15F new planting to 6k ha.
Forecast, TP revised.
- We tweaked FY15F/16F earnings by -8%/-3% to account for lower projected biodiesel output (previously assumed to commence 1 Jul15), lower domestic ASP, and slightly higher tax rate while leaving our FFB and CPO production volumes unchanged.
- Our TP is likewise revised to S$2.04 (based on DCF);
Rating upgraded to BUY.
- We recommend investors to accumulate FR on any near-term weakness, as we believe its current share price has more than reflected lower earnings prospects over the next 12 months.
- We expect CPO prices to recover next year on lower prospective soybean planted area, slower palm oil output growth, and ramp up of biodiesel offtake. Our TP implies 14% upside excluding 2% dividend yield.
Ben SANTOSO | http://www.dbsvickers.com/ DBS Securities 2015-08-14
2.04
Down
2.11
