FIRST RESOURCES LIMITED
EB5.SI
First Resources Ltd - Stock build-up dampens 3Q earnings
- 9M15 results broadly in line, accounting for 72% of our and consensus estimates.
- Core net profit fell 21% yoy in 3Q15 due to lower CPO prices and higher stocks.
- Downstream earnings improved in 3Q as new CPO levy boosted refining margin.
- The group anticipates a moderate recovery in CPO prices.
- Maintain Add with a higher target price of S$2.38 (13x P/E) due to rollover effect.
■ 3Q results broadly in line with expectations
- First Resources’ 9M15 core net profit was in line with our expectations at 72% of our and consensus full-year forecasts. The 3Q earnings would have been higher if not for a net inventory build-up of 70,000 tonnes of palm products in 3Q15 and 92,000 tonnes in 9M15.
- We estimate that if the stocks were sold, it could have added another US$12m to 3Q15 net profit.
■ Lower CPO prices dampened 3Q performance
- The group’s 3Q15 core net profit fell 21% yoy due to lower plantation earnings. Plantation EBITDA fell 36% yoy in 3Q15 and 14% yoy in 9M15 as lower CPO prices and sales volumes trumped higher FFB output. ASP achieved for CPO fell 25% yoy to US$497/tonne in 3Q, marginally lower than the average CPO price in Belawan of US$528/tonne.
■ Stronger FFB output but lower CPO sales volumes
- 3Q15 and 9M15 FFB output jumped 11% yoy and 15% yoy, respectively, on better FFB yield achievement and new mature areas. These were broadly in line with the group’s guidance of 10-15% output growth for 2015. However, they were not fully captured in its 3Q earnings as CPO and processed palm products sales were impacted by a net inventory build-up of 70,000 tonnes in 3Q15.
■ Improving downstream margins in 3Q15
- Refining and processing earnings improved 59% yoy in 3Q as refining margins rose following the implementation of the CPO levy on 16 July 2015. The group was recently appointed to supply 73,000 kilolitres of biodiesel to Petamina during Nov-Apr 16, which should help boost the future profitability of this division.
■ Projecting moderate recovery in CPO prices
- The group anticipates a moderate recovery in palm oil prices, driven by concerns of a potential disruption to palm oil supply due to the dry weather in Indonesia and the implementation of Indonesia’s biodiesel policy. It expects 4Q production to be seasonally lower. This is broadly in line with our assumptions.
■ Maintain earnings forecasts but target price raised
- We maintain our earnings forecasts, which project 4Q earnings to be slightly better than 3Q’s due to higher selling prices and sales volumes.
- We maintain our Add call and raise our target price to S$2.38 as we roll over to FY16, although we lower our target basis to 13x (historical average) from 15.3x to reflect concerns regarding the impact of IAS41.
- We like the group’s favourable estate profile, cost efficiency and attractive valuations.
Ivy NG Lee Fang CFA
CIMB Securities
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http://research.itradecimb.com/
2015-11-16
CIMB Securities
SGX Stock
Analyst Report
2.38
Up
2.23
