First Resources - Maybank Kim Eng 2016-02-25: Look forward to a better 2016

FIRST RESOURCES LIMITED EB5.SI

First Resources (FR SP) - Look forward to a better 2016

FY15 results underperformed, mainly on unexpected downstream losses and a higher effective tax rate in 4Q15.
We forecast a better 2016 on El Nino induced CPO price recovery. This sector bellwether is the best proxy for an El Nino trade in 1H16.

Following our revised 2016/17 EPS (-10%/- 7%), we lower our TP 8% to SGD2.08 on unchanged 17x 2016 PER, pegged at +1SD above its historical mean.

4Q15 miss on higher tax rate, downstream losses FR posted a headline PATMI of USD108m (-38% YoY).
Stripping aside a fair valuation loss on biological assets (USD3m), its core PATMI of USD110m (- 36% YoY) met 87%/86% of our/consensus estimates.
The underperformance was mainly due to unexpected downstream losses of USD2m (due to an unhedged position), and a higher effective tax rate of 43% in 4Q15, which lifted FY15’s overall effective tax rate to 31%.

Operationally, both plantation upstream and downstream earnings recorded lower FY15 earnings, mainly dragged down by lower palm prices.
For 2016, FR is guiding for flat to -5% growth in FFB output due to the dry weather in 3Q15 (although we think FR is conservative). FR believes output in 2016 will be largely skewed towards 2H16 with a distribution ratio of 40:60 (1H:2H).
Nonetheless, we believe this will be more than compensated for by a higher CPO price, especially in 1H16, whereby the CPO price could rise above MYR2,700/t.

FR has guided that FRS 16’s accounting application (effective 1 Jan 2016) will negatively impact its 2015’s proforma equity/net profit by 27%/13%, which we have factored into our 2016-18 EPS forecasts.
Still, we look forward to a better 2016 on an improving CPO price (+6% YoY), FFB output growth of +4% (we think management is too conservative), and higher downstream earnings, resulting in 21% EPS growth.

Ong Chee Ting CA Maybank Kim Eng | http://www.dbsvickers.com/ 2016-02-25

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 2.08 Down 2.26