First Resources - UOB Kay Hian 2016-08-15: 2Q16 The Outperformer

FIRST RESOURCES LIMITED EB5.SI

First Resources (FR SP) - 2Q16: The Outperformer

FR posted a good set of 2Q16 results. Core net profit of US$24.9m came in above our expectation.
The key positive variance was attributed to higher sales volume and better ASP booked by upstream operations.
Meanwhile, downstream operations were loss-making due to stiff competition for CPO.

We are forecasting FFB production growth of -9.6% yoy for 2016, while we expect management to revise down their production guidance.
Maintain BUY. Target price: S$2.00.

First Resources (FR) reported a good set of results for 2Q16 with a core net profit of US$24.9m (>100.0% qoq, -5.1% yoy). For 1H16, core net profit was US$30.8m (-40.4% yoy). Results were above our expectation, largely due to the better-than-expected performance from upstream operations on higher sales volume and ASP, while refining posted losses as stiff compeition led to higher feedstock prices.
FR declared an interim dividend of 0.625 S cent/share, which is lower than 1.25 S cent/share in 2Q15. Payment will be made on 16 Sep 16.

This division reported an EBITDA of US$58.8m (+>100.0% qoq, -0.4% yoy) for 2Q16.
The strong performance was due to a higher inventory drawdown (estimated about 20,000 tonnes or 15% of total sales volume in 2Q16) and higher-than-expected CPO ASP of US$621/tonne.
This led to a higher EBITDA margin for 2Q16 of US$454/tonne in 2Q16 vs US$147/tonne in 1Q16 and US$347/tonne in 2Q15.
Meanwhile, EBITDA was US$81.1m (-27.5% yoy) for 1H16. This was mainly due to lower FFB production and lower CPO ASP.

Performance was below expectations.
Despite the increase in revenue on the back of higher sales volume, this division suffered an EBITDA loss of US$7.2m for 2Q16, bringing 1H16’s EBITDA to - US$4.1m. The loss was mainly due to FR having to pay a premium for CPO to secure more feedstock for its refining operations to increase utilisation.
Indonesian refineries are facing a shortage of feedstock due to low FFB production after the most severe El Nino occurred in 2015. Refiners have to offer higher prices vs the international pricing to get more CPO.

CPO ASP increased significantly qoq to US$621/tonne for 2Q16.
However, CPO ASP dipped 10.1% yoy to US$548/tonne for 1H16. This was mainly due to there being no export levy in 1H15. We are maintaining our CPO prices estimate of average RM2,500/tonne (or gross selling price of US$610/tonne) for 2016.

FFB nucleus production improved qoq, but was still lower yoy for 2Q16.
For 1H16, FFB nucleus production was 917,000 tonnes (-15.9% yoy), as the effect of dry weather in 2015 impacted both production volume as well as yields.
Management previously guided for FFB nucleus production growth of 0% to -5% for 2016. In view of the slow recovery, we believe that management is likely to revise down their FFB nucleus production guidance in the briefing today.
We are maintaining our FFB nucleus production growth estimate of -9.6% yoy for 2016, while expect to see a strong recovery in 2017 (+17.9% yoy).

No change to earnings estimates.
We forecast an EPS of 5.9 US cents, 8.6 US cents and 8.4 US cents for 2016, 2017 and 2018 respectively, pending an outlook guidance from management in a briefing today.

Maintain BUY and target price of S$2.00, based on 17x 2017F PE. FR is one of our preferred picks in the plantation sector for its cost efficiency and hands-on management.

Singapore Research Team UOB Kay Hian | http://research.uobkayhian.com/ 2016-08-15

UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 2.000 Same 2.000