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First Resources - Maybank Kim Eng 2016-08-15: Weak results priced in

First Resources (FR SP) - Maybank Kim Eng 2016-08-15: Weak results priced in FIRST RESOURCES LIMITED EB5.SI

First Resources (FR SP) - Weak results priced in


El Nino impact on output is temporary 

  • After a dismal 1Q16 results, 2Q16 results rebounded sharply QoQ but still lagged full-year expectations on weak output. We cut our 2016-18 EPS by 6-23% on lowered FFB output forecasts. 
  • We believe FR’s weak results are largely priced in. As El Nino’s impact on output is temporary, we expect yield to normalise in 2017. 
  • BUY on revised SGD1.80 TP as we roll forward our valuation base year with a 17x 2017 PER peg.


Lower-than-expected output hurt 1H16 results 

  • 2Q16 core PATMI grew 389% QoQ to USD26m (+4% YoY), bringing 1H16 core PATMI to USD31m (-36% YoY). 
  • Results were still below as 1H16 met 27% of consensus / our FY16 estimates. 
  • The shortfall largely came from lower-than-expected FFB nucleus output as 1H16 met just 37% of our full year forecasts, and to a lesser extent downstream losses with LBITDA margins of –USD11/t (1H15: USD14/t). This earnings shortfall was despite a net inventory drawdown of 29,000 MT in 1H16.


2016’s FFB output lowered to -10% YoY (vs -1%) 

  • Ahead of FR’s analyst briefing today, we have conservatively cut our 2016-18 FFB nucleus output by -9%/ -5%/ -3% given the unexpected severity of 2015’s El Nino impact on 2016’s output. This translates to - 10%/ +26%/ +13% YoY changes in FFB nucleus output over 2016-18. 
  • The revised output implies the distribution ratio in 2016 will be largely skewed towards 2H16 with an output ratio of 40:60 in 1H:2H.


Expect stronger 2H16 earnings; BUY retained 

  • We expect seasonally stronger output and better downstream margins to boost 2H16 earnings. But following revisions to our FFB output assumptions, we cut our 2016-18 EPS by -23%/-11%/-6%. Taking a longer term view, FR offers a good three-year forward FFB output CAGR of 9%.
  • Our new SGD1.80 TP is based on 17x 2017 PER (previously SGD1.71 on 17x 2016 PER), pegged at its historical mean. An interim DPS of 0.625 SGD cents was proposed (1H15: 1.25 SGD cents).




Ong Chee Ting CA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-08-15
Maybank Kim Eng SGX Stock Analyst Report BUY Upgrade HOLD 1.80 Up 1.71


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