First Resources - UOB Kay Hian 2015-11-17: 10M15 FFB Production Growth Starts To Slow Down

First Resources - UOB Kay Hian 2015-11-17: 10M15 FFB Production Growth Starts To Slow Down FIRST RESOURCES LIMITED EB5.SI 

First Resources (FR SP) - 10M15: FFB Production Growth Starts To Slow Down 


WHAT’S NEW 


• First Resources (FR) announced Oct 15 production data. 

  • FFB production dipped 2.9% mom in October due to seasonally lower FFB yield in the fourth quarter. But production was still up 19.2% yoy, supported by strong growth from both nucleus (+20.3% yoy) and plasma (+10.5%) production, and partly supported by higher production growth from its young prime areas in Kalimantan. 
  • For 10M15, FFB production was up 15.0% yoy. 

• Lower third-party purchases. 

  • Total CPO production was lower than FFB production mainly due to lesser third-party purchases at mills. FFB purchases fell 37.6% mom and 42.5% yoy in Oct 15 and 12.3% yoy in 10M15. 
  • As production from owned estates picks up, FR will buy fewer third-parties FFB, and any purchases are to fill up new milling capacity. 

IMPACT 


• On track to meet expectations. 

  • Despite 10M15 nucleus production growth of 15.7% yoy was ahead of our expectation of 12.8% yoy for 2015, we are keeping our forecast because: 
    1. of the higher base in 4Q14, and 
    2. production to fall as a result of the current dry weather and haze. 

• Sales volume in 4Q15 to be supported by inventory drawdown. 

  • FR had a net inventory build-up of 70,000 tonnes in 3Q15 due to the delay in scheduled shipments. We believe these inventories will be drawn down in 4Q15, which will help to boost its performance in the quarter. 

EARNINGS REVISION 

  • We maintain our EPS forecasts of 8.5 US cents, 11.7 US cents, and 14.4 US cents for 2015-17 respectively. 


VALUATION/RECOMMENDATION 

  • Maintain BUY and target price at S$2.40, based on 15x 2016F PE. We like FR as it is a beneficiary of Indonesia’s new export levy and biodiesel policies. 
  • It also has one of the lowest production cost and a good track record of delivering better-than-industry FFB yield and OER.


Singapore Research UOB Kay Hian | http://research.uobkayhian.com/ 2015-11-17
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 2.40 Same 2.40

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