First Resources - RHB Invest 2016-02-26: Disappointing 4Q15, Expect a Better FY16

FIRST RESOURCES LIMITED EB5.SI

First Resources - Disappointing 4Q15, Expect a Better FY16

We continue to expect rising CPO prices to lift First Resources’ earnings, given its sensitivity, although this would be partially offset by a reduction in FFB output.
We trim our TP to SGD2.35 (from SGD2.69, 28% upside), implying an EV/ha of close to USD16,000/ha, which is in line with its SGXlisted and JSX-listed peers, but below the Malaysian peer average.

Despite the disappointing earnings, we think it could see a recovery this year, while valuations remain attractive at 14-15x 2016F P/E and a 3-year earnings CAGR of 16%.

CPO price increase to offset lower FFB output.
We still expect rising CPO prices to lift First Resources’ earnings, given its sensitivity of 4-5% for every MYR100/tonne change. This would be partially offset by a reduction in FFB output, as per management’s latest guidance of 0-5% FFB growth this year.
However, we expect to see increasing contributions from its biodiesel division in 1Q16, given the expiry of its biodiesel contract with Pertamina in April.

First Resources suffered from lower CPO prices (due to the export levy), higher costs and higher effective tax rates in 4Q15, which dragged down overall FY15 earnings.
However, inventory build-up during the quarter was 60,000 tonnes – higher than its normal levels of 25-30,000 tonnes – which should be cleared by 1Q16.

We trim our earnings estimates by 13.6-14.2% for FY16- 17, after taking into account lower FFB growth, lower refining margins, higher depreciation and lower capex.

Post-earnings revision, we reduce our TP to SGD2.35, based on 19x 2016F earnings. This implies an EV/ha that is in line with its SGX-listed and JSX-listed peers, but below the Malaysian peer average of USD30,000/ha.
Despite the disappointing performance, we expect earnings to recover in this year, while valuations remain attractive at 14-15x 2016F P/E and a 16% 3-year earnings CAGR.

Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2016-02-26

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 2.35 Down 2.69