First Resources Ltd - CIMB Research 2015-12-09: Top pick among Singapore planters

First Resources Ltd - CIMB Research 2015-12-09: Top pick among Singapore planters FIRST RESOURCES LIMITED EB5.SI 

First Resources Ltd - Top pick among Singapore planters 

  • Young estates offer strong output growth prospects. 
  • Appointed as one of Pertamina’s biodiesel suppliers. 
  • Changes in IAS41 policy could raise depreciation charges by US$20m in 2016. 
  • 9M15 output growth of 15% is in line with its target and higher than peers. 
  • Maintain Add, with target price of S$2.38 (13x forward P/E). 

■ Efficient and young estates 

  • We continue to favour the group for its young estate profile (average age of nine years) as this bodes well for its output growth prospects, which will be led by the new mature areas, improving yields from young estates (which covers 27% of the group’s planted area) and ongoing rehabilitation of its newly-acquired estates. 
  • The favourable yields achieved by its estates, coupled with good cost controls, enabled the group to produce CPO at a lower cost per tonne of approximately US$230 for FY15. 

■ Appointed biodiesel supplier to Pertamina 

  • The group owns 850k tonnes of refining capacity, allowing the group to refine all of its CPO in-house and extract better profit margins for its palm products. Its biodiesel plant in Indonesia stands to benefit from the higher demand in the country following the government’s moves to raise its biodiesel mandates to 20% blend in 2016 from 15% currently. 
  • The group was recently appointed to supply 73,000 kilolitres of biodiesel to Pertamina during Nov 15-Apr 16. 

■ Potential IAS41 impact on depreciation 

  • The group has revealed that the changes in accounting policy IAS41 for biological assets will result in a one-off adjustment of its plantation assets back to historical costs less accumulated depreciation and impairment. This will reduce its shareholders equity and raise its depreciation charges as the revised policy requires the mature estates to be depreciated over their useful lives. 
  • Our calculation reveals that the accounting changes could lead to a US$20m rise in depreciation charges beginning 1 Jan 2016. 

■ Hitting key production targets in FY15 

  • FFB production growth from its nucleus estates rose 15% in 9M15, in line with the group’s guidance of 10-15% growth and above the achievement of most of its peers. However, its new planting achievement of 4,127 ha is below its earlier target of 5,000- 10,000 ha per annum following the adoption of more stringent sustainable palm oil policies. 

■ Maintain Add 

  • First Resources is our top pick among the regional planters due to its superior operating efficiency compared to peers, strong FFB output growth prospects and attractive P/E valuations vs. peers. 
  • We maintain our Add call and target price of S$2.38, based on forward P/E of 13x (historical average).

Ivy NG Lee Fang CFA CIMB Securities | http://research.itradecimb.com/ 2015-12-09
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 2.38 Same 2.38