First Resources (FR SP) - Maybank Kim Eng 2017-01-27: Expect good 4Q16 results

First Resources (FR SP) - Maybank Kim Eng 2017-01-27: Expect good 4Q16 results FIRST RESOURCES LIMITED EB5.SI

First Resources (FR SP) - Expect good 4Q16 results

2017’s yield recovery is on the way 

  • 4Q16 results will likely come in above ours and consensus estimates largely on better-than-expected output. But good share price run up since mid-2016 have largely priced in the positives as First Resources (FR) currently trades at its 5-year historical mean of 17x PER. 
  • We are keeping our forecasts pending fresh guidance on 2017 outlook. The stock is a HOLD with an unchanged TP of SGD1.97 on 17x 2017 PER. 
  • We prefer Bumitama Agri (BAL SP, BUY, TP: SGD0.97) in the sector.

4Q16 FFB output came in above expectations 

  • Last night, FR announced its 4Q16 FFB yield rose 8% YoY to 5.4t/ha, a positive sign that the lagged impact of 2015’s EL Nino may have ended after three consecutive quarters of double-digit YoY decline. 
  • In terms of output, 4Q16 FFB nucleus output of 766,298 MT (+15% YoY, +12% QoQ) brings 2016 FFB output to 2,367,767 MT (-6% YoY) which met 103% of our full-year forecasts. The numbers also beat FR’s earlier guidance of a 10% YoY decline in FFB output for 2016.

Expect better-than-expected 4Q16 results 

  • In 4Q16, MPOB’s spot CPO price averaged USD682/t. Taking into account the palm oil export levies imposed by the Indonesian government (since 16 Jul 2015), the net CPO ASP received by FR is estimated at ~USD640/t (+38% YoY, +5% QoQ). 
  • Combined with improved QoQ output, we estimate FR to report 4Q16 core PATMI of ~USD52m (9M16: USD67m), bringing fullyear core PATMI to USD119m; +12% / +14% above our/ consensus full-year forecasts.

Yield recovery priced in 

  • We believe the market has largely priced in the positives of FR’s yield recovery as reflected in the stock’s 17x 2017 PER currently. 
  • But what remains unknown at this juncture is the quantum of a potential one-off tax credits that FR may recognise in 4Q16 as highlighted in the previous quarter. These credits relate to special tax incentives for fixed asset revaluation in Indonesia.

Ong Chee Ting CA Maybank Kim Eng | 2017-01-27
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 1.970 Same 1.970