First Resources - RHB Invest 2016-11-10: Another Strong Quarter To Come

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FIRST RESOURCES LIMITED EB5.SI

First Resources - Another Strong Quarter To Come

• We expect First Resources to post even stronger earnings in 4Q16, on the back of continued FFB volume improvements as well as higher CPO prices. Its downstream division’s margins should also remain in the black on higher sales volumes. 
• No change to our earnings forecasts for now, pending the analyst briefing later today. 
• We maintain our NEUTRAL stance on the stock, with an unchanged TP of SGD1.73 (4% downside), implying 2017 P/E of 18x and EV/ha of USD12,000.

FFB output recovery to continue in 4Q16. 

• First Resources’ 9M16 FFB output declined 14% YoY vs our projected -9.9% for FY16, and management’s original guidance of -10% YoY. 
• Nevertheless, we expect the company to achieve our projected FFB output for FY16 given our expectation of further QoQ recovery in 4Q16. 
• In 3Q16, FFB output rose 43% QoQ.

Downstream margins to remain positive in 4Q16. 

• Its downstream division turned around to positive territory, on the back of higher output and sales volumes. We expect this to continue in 4Q16, as production is likely to remain robust, thus bolstering economies of scale.

CPO price fell 1.7% QoQ. 

• Its 3Q16 transacted CPO price of USD610/tonne was 1.7% lower QoQ, bringing YTD 9M16 average CPO price to USD568/tonne. We expect it to achieve our FY16 average CPO price of USD578/tonne (ex-export tax), given current higher prices. For every MYR100/tonne change in CPO price, its earnings would be impacted by 4-5% pa, based on our estimates.

NEUTRAL. 

• No change to our earnings forecasts for now, pending the analyst briefing later today. We maintain our TP of SGD1.73, which implies 2017 P/E of 18x and EV/ha of USD12,000 – in line with its peers of USD10,000-15,000/ha.
• The company’s relatively large exposure to Riau (67%) puts it at risk, in the face of weak weather-led productivity, while valuations appear fair at current levels.

Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2016-11-10

RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 1.730 Same 1.730