First Resources (FR SP) - UOB Kay Hian 2016-11-10: 3Q16 Results Within Expectations

First Resources (FR SP) - UOB Kay Hian 2016-11-10: 3Q16 Results Within Expectations FIRST RESOURCES LIMITED EB5.SI

First Resources (FR SP) - 3Q16 Results Within Expectations

  • First Resources (FR) reported in-line 3Q16 results on better performances from upstream operations and a turnaround in the refining segment. Upstream sales volume improved qoq on the back of a strong pick-up in production. 
  • Meanwhile, the refining segment was supported by higher sales volume and refining margin. 
  • We expect production to continue picking up in 4Q16 and maintain CPO price forecast of RM2,500/tonne for 2016.
  • Maintain BUY. Target price: S$2.00.


Results within expectations. 

  • First Resources (FR) reported core net profit of US$36.0m in 3Q16 (+44.8% qoq, +13.7% yoy), bringing 9M16 core net profit to US$66.8m (-19.8% yoy), which is within our expectation. 
  • The strong qoq improvement was mainly supported by strong upstream operations and higher sales volume despite a marginal qoq dip in crude palm oil average selling price (CPO ASP) coupled with a turnaround in the refining and processing segment. 
  • For 9M16, core net profit fell yoy on weaker production due to the lagged impact from the drought.


Plantation and palm mills: Stronger qoq and yoy. 

  • This division reported good results for 3Q16 with EBITDA of US$69.4m (+17.9% qoq, +35.2% yoy). The better qoq performance was mainly supported by a significant pick-up in FFB production (+44.9% qoq) in the peak production period and a recovery in FFB yield, while the stronger yoy growth was boosted by stronger CPO ASP (+21.9% yoy). 
  • For 9M16, EBITDA decreased 7.8% yoy mainly due to weaker FFB production (-12.8% yoy) and CPO ASP (-0.7% yoy).

Refining and processing: EBITDA turnaround. 

  • EBITDA turned around from a US$7.2m loss in 2Q16 to US$10.9m in 3Q16 on the back of higher sales volume and a better refining margin of US$59/tonne. The improvement in refining margin was mainly due to more feedstock available in the market as production picked up qoq. Thus, it was cheaper to buy CPO than in 2Q16 when external crop intake increased significantly qoq.
  • For 9M16, EBITDA plunged 59.2% yoy due to weak refining margin despite an increase in sales volume.

CPO prices decreased marginally qoq. 

  • In 3Q16, CPO ASP fell marginally qoq but jumped 21.9% yoy, mainly due to tight supply since 1H16 and stable demand from exports. For 9M16, CPO ASP was US$567.8/tonne (-0.7% yoy). 
  • All in all, we reckon CPO prices will hover at RM2,400-2,800/tonne in 4Q16. Thus, we maintain our CPO price forecast of RM2,500/tonne for 2016.

No change to our forecast of a 9.6% yoy fall in FFB nucleus production for 2016.

  • FFB nucleus production improved qoq but was still lower yoy in 3Q16. 
  • FFB nucleus production was 1.6m tonnes (-14.0% yoy) as the dry weather in 2015 impacted yield and production. We are maintaining our FFB nucleus production to fall 9.6% yoy in 2016, in line with management guidance of -10% yoy. As such, we are eyeing another strong production in 4Q16, accounting for 30% of our full-year estimate. 
  • For 2017, we expect a strong recovery (+17.9% yoy) on the back of yield recovery.


  • No change to our earnings estimates. We forecast EPS of 6.6 US cents, 8.6 US cents and 8.4 US cents for 2016-18 respectively, pending the outlook guidance from management in a briefing today.


  • Maintain BUY and target price of S$2.00, based on 17x 2017F PE (5-year mean PE).
  • FR is one of our preferred picks in the plantation sector for its cost efficiency and handson management.


  • Rally in CPO prices.
  • Sustainability of better-than-peers’ downstream margin.

Ooi Mong Huey UOB Kay Hian | Singapore Research Team UOB Kay Hian | http://research.uobkayhian.com/ 2016-11-10
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 2.00 Same 2.000