First Resources - Maybank Kim Eng 2015-11-16: Expect Stronger 4Q15

First Resources - Maybank Kim Eng 2015-11-16: Expect Stronger 4Q15 FIRST RESOURCES LIMITED EB5.SI 

First Resources (FR SP) - Expect Stronger 4Q15 

  • 3Q15 results in line. 
  • We raise 2016-17 EPS by 5-8% after cutting USD costs to reflect IDR depreciation. 
  • Accordingly, we lift TP to SGD1.73 from SGD1.60 on unchanged 13x 2016 PER. 
  • Maintain HOLD as we believe positives are in its price. 

Low 3Q on low ASPs & net build-up of stock 

  • 3Q15 core PATMI of USD32m (-26% YoY, +11% QoQ) brings 9M15 core PATMI to USD88m (-23% YoY). This met 70% / 67% of our / consensus estimates, in line. 
  • 3Q’s YoY weakness was mainly due to a 25% YoY/16% QoQ decline in CPO ASPs, mitigated by FFB nucleus output, up 11% YoY and 35% QoQ. 
  • Net inventory build-up was also high at 70,000 MT. However, this was merely a timing issue as inventory normalised in Oct 2015. 
  • Downstream absolute margins were good at USD105/tonne, up 111% YoY and 15x QoQ. 
  • Besides benefiting from an export-tax differential of USD20-30/tonne, the division profited from hedging positions. 

Output peaked in 3Q15 but profit to peak in 4Q15 

  • We expect a much stronger 4Q15. While its FFB output could decline QoQ as production traditionally peaks in 3Q, 4Q15 sales are expected to be strong following inventory drawdowns. 
  • Downstream margins are also expected to be good. 
  • FR maintains its full-year FFB nucleus growth guidance of 10-15% (9M15: 15% YoY) as its oil palm estates, predominantly in Riau province, were largely spared from the dry spell enveloping the region in the last 2-3 months. 
  • While we maintain our HOLD, we raise TP to SGD1.73 from SGD1.60 after increasing EPS by 5-8% for lower USD costs. This is pegged at unchanged 13x 2016 PER, its 5- year mean valuation.

Ong Chee Ting CA Maybank Kim Eng | 2015-11-16
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 1.73 Up 1.60