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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%. 

Maintain BUY. 

  • 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. 

CPO stock buildup. 

  • 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. 

Forecasts reduced. 

  • 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. 

Still a BUY. 

  • 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


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