FIRST RESOURCES LIMITED
EB5.SI
First Resources - Dismal 1Q16, Expect Improvements From 2Q Onwards
- FR’s first-quarter results were pretty dismal but we expect to see higher transacted CPO prices in 2Q16 (+25% QoQ) along with improved FFB output.
- Productivity should improve in 2H16, since this period is the peak of the production cycle.
- Maintain BUY with a lower TP of SGD1.90 (from SGD2.35, 11% upside), as we believe valuation is relatively low currently, as it is trading at less than +1SD above its mean (particularly in a rising CPO price environment) and an implied EV/ha of just USD11,000.
FFB output expected to recover in 2H16.
- Given the weakness seen in FFB output in 1Q16, we have lowered our FFB output forecast by 7 to 8% ie lower than management’s guidance of 5% lower.
- We continue to expect to see increasing contributions from its biodiesel division this year, given the new biodiesel contract awarded to it for the period of May to October.
Forecasts reduced.
- We trim our earnings estimates by 11.3-14.5% for FY16- 18F, after taking into account the lower FFB growth, higher unit costs, lower new planting targets and higher effective tax rates.
One month lag for CPO price recognition.
- First Resources’ transacted CPO price for 1Q16 was much lower than market prices due to the 1-month lag caused by the sale of its CPO to its downstream unit.
- We expect 2Q16 to record better earnings vis-à-vis 1Q16, as CPO prices for the period March-May are higher by 25% from Dec-Feb.
- We still expect rising CPO prices to lift the company’s earnings, given its sensitivity of 4-5% for every MYR100/tonne change.
Still a BUY.
- Post-earnings revision, we reduce our TP to SGD1.90, 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 slightly in this quarter and more in the second half of the year, while valuations remain attractive at 16x 2016F P/E vs its regional peers’ of 18-22x.
Singapore Research
RHB Invest
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http://www.rhbinvest.com.sg/
2016-05-13
RHB Invest
SGX Stock
Analyst Report
1.90
Down
2.35
