First Resources - RHB Invest 2016-08-15: Looking Toward A Brighter 2H16

First Resources - RHB Invest 2016-08-15: Looking Toward A Brighter 2H16 FIRST RESOURCES LIMITED EB5.SI

First Resources - Looking Toward A Brighter 2H16

  • First Resources (FR) continued to be affected by the El Nino in 2Q16, although we believe the 2H16 should see a marked recovery in FFB output and therefore unit costs. Downstream margins could also see a reversion to profitability in 2H16, as 2Q16 saw competitive pressures for feedstock result in negative margins. 
  • We leave our forecasts and TP of SGD1.80 unchanged for now, pending the analyst briefing later today. 
  • Although we expect better prospects in 2H16, we believe valuations are fair at current levels. 
  • Maintain Neutral.

FFB output expected to recover in 2H16. 

  • FR’s 1H16 FFB output declined 16% YoY versus our projected -7.6% for FY16 and management’s original guidance of -5% YoY. 
  • Assuming FFB output represents a ratio of 40:60% in 1H:2H, FR should be able to meet our FFB forecast for FY16.

Negative downstream margins to reverse in 2H? 

  • FR’s downstream division saw the same fate as its peers, where margins went into negative territory, likely due to the same reason of intense competition for external CPO in a drought environment. 
  • We expect this to reverse in 2H16, however, on the back of the seasonal peak production.

CPO price rose 31% QoQ. 

  • FR’s 2Q16 transacted CPO price of USD621/tonne was 31% higher QoQ and in line with expectations, given the one month price recognition time lag that it experiences due to the sale of CPO to its downstream unit. 
  • Although CPO prices moderated in 3Q, we expect 2H to be better for FR on the back of better productivity and therefore lower unit costs.
  • For every MYR100/tonne change in CPO price, FR’s earnings are impacted by 4-5% p.a.


  • No change to our earnings forecasts for now, pending the analyst briefing on Monday morning. 
  • We maintain our TP of SGD1.80, which implies 18x P/E on 2017 earnings and an EV/ha of USD12,000/ha, which is in line with its peers of USD10,000-15,000/ha. 
  • FR’s large exposure to Riau (67%) puts it at risk in the face of weak weather-led productivity, while valuations look fair at current levels.

Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2016-08-15
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 1.80 Same 1.800