FIRST RESOURCES LIMITED
EB5.SI
First Resources (FR SP) - 4Q16 FFB Nucleus Production Comes In Slightly Stronger Than Expected
- First Resources (FR)’s FFB nucleus production fell 6.4% yoy in 2016; this is slightly better than our and management’s expectations of 9.6% yoy and 10% yoy declines.
- We expect better qoq and yoy 4Q16 earnings on:
- improved FFB production and higher CPO prices, and
- stable contribution from downstream operations.
- We adjust our FFB production growth estimates for 2017-18 and hence raise our net profit estimates by 5% and 13% respectively.
- Maintain BUY with a higher target price of S$2.15.
WHAT’S NEW
4Q16 FFB nucleus production slightly stronger than expectations.
- First Resources’ (FR) 4Q16 fresh fruit bunch (FFB) nucleus production improved qoq and yoy.
- For 2016, FFB nucleus production declined 6.4% yoy, but this is slightly better than our and management’s expectations of 9.6% yoy and 10% yoy declines respectively.
- The positive variance was mainly due to the stronger-than-expected recovery in FFB.
Expect better qoq and yoy 4Q16 earnings.
- We forecast 4Q16 core net profit of US$38m- 43m (3Q16: US$36m, 4Q15: US$21m). We expect better qoq and yoy 4Q16 earnings on:
- improved FFB production and higher CPO prices, and
- stable contribution from downstream operations.
- FR is targeting to release its 4Q16 results on 27 Feb 17 after market close.
STOCK IMPACT
Deferred tax income recognition could have boosted 4Q16 net profit.
- 4Q16 net profit is expected to be higher than our core net profit forecast of US$38m-43m as management indicated that FR would report a deferred tax income arising from government incentives for the revaluation of assets in 4Q16.
- However, we understand that the quantum of the deferred tax income would not be substantial as management is likely to adopt a more conservative write-back so as prevent a distortion in core earnings.
Expect stable downstream operational results for 4Q16.
- Refining volume is expected to have remained high qoq and yoy on the back of better production. However, refining margin could be lower qoq and yoy. Thus, we are expecting a flat or a marginal increase at best in refining earnings for 4Q16.
- Nevertheless, refining volume will be supported by contributions from biodiesel sales to Pertamina.
Higher CPO production qoq and yoy, in line with the increase in FFB production.
- CPO production increased 12.7% qoq and 19.0% yoy in 4Q16 on the back of an improved oil extraction rate (OER). For 2016, CPO production dropped 7.6% yoy.
Expect higher CPO prices qoq and yoy for 4Q16.
- In 4Q16, Indonesia Dumai/Belawan CPO prices inched up 3.8% qoq but surged 38.4% yoy. The substantial increase in CPO prices was mainly due to tight supply and stable export demand.
- All in all, we reckon CPO prices will hover at US$650-750/tonne in 1H17, and are likely to decline when production picks up in 2H17.
Raise FFB production growth forecasts for 2017-18.
- We raise our FFB production growth forecasts to 18.1% yoy (from 17.9%) and 19.2% yoy (from 16.9%) for 2017-18 respectively as we expect a stronger FFB yield recovery.
- We expect FR’s FFB production growth to be supported by a production recovery at its estates in Riau and West Kalimantan.
EARNINGS REVISION/RISK
Raise net profit forecasts.
- We maintain our EPS forecast for 2016, and raise our 2017- 18 EPS forecasts by 5% and 13% respectively on our higher FFB production growth assumptions.
- We forecast EPS of 6.6 US cents, 9.1 US cents and 9.5 US cents for 2016-18 respectively.
VALUATION/RECOMMENDATION
- Maintain BUY with a higher target price of S$2.15 (up from S$2.00), post earnings adjustment.
- Our target price is 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 hands-on management.
SHARE PRICE CATALYST
- Rally in CPO prices.
- Sustainability of better-than-peers’ downstream margins.
Ooi Mong Huey
UOB Kay Hian
|
Singapore Research Team
UOB Kay Hian
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http://research.uobkayhian.com/
2017-02-03
UOB Kay Hian
SGX Stock
Analyst Report
2.15
Up
2.000
