First Resources - RHB Invest 2017-02-28: FFB Recovery Expected In FY17

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FIRST RESOURCES LIMITED EB5.SI

First Resources - FFB Recovery Expected In FY17

• First Resources saw a decent recovery in its FFB output in 4Q16, which led to a moderation of decline for FY16 to -6.4%. 
• Going into 2017, we expect FFB output to grow by 8.3% YoY, as productivity returns to normal. 
• First Resources retains its status as one of the lowest cost producers with an estimated unit cost of USD215.00/tonne in 2016. We expect this to remain relatively flat in FY17, as the FFB yield improvements would offset the increase in wages and fertiliser costs. 
• Maintain NEUTRAL, tweaking TP to SGD1.90 (from SGD2.00, 2% upside).

Decent recovery in FFB output in 4Q16, rising 12% QoQ from 3Q and 14% YoY. 

• This led to a decline in FY16 FFB output, moderating to -6.4% (from -14% in 9M16). This is better than management’s guidance of -10% YoY decline, but in line with our projection of -7% YoY for FY16.

FFB growth to return to normal from FY17. 

• Going forward, we expect First Resources’ FFB growth to return to normal from FY17, as its trees fully recover from the El Nino impact. 
• We expect the company to register FFB growth of 5-10% pa for FY17-18, as there is not much contribution from new areas coming into maturity over the next few years.

CPO price rose 8.6% YoY. 

• Its 4Q16 transacted CPO price of USD629/tonne was 3.1% higher QoQ, bringing FY16’s average price to USD587/tonne, in line with our projected USD578/tonne (ex-export tax). 
• For every MYR100/tonne change in CPO price, we estimate its earnings would be impacted by 4-5% pa..

Downstream margins fell back to the red in 4Q16. 

• Its downstream division reversed into negative territory, on the back of higher feedstock costs. 
• We expect downstream sales volumes to remain relatively robust (+55.6% in FY16), although margins would remain weak due to the high feedstock costs.

NEUTRAL maintained. 

• After updating for FY16 results, we reduce FY17F-18F earnings by 3-4% YoY and introduce FY19 forecasts. 
• Our TP thus moves to SGD1.90 (from SGD2.00), based on 2017F P/E of 19x and EV/ha of USD12,000. This is in line with its peers, which trade in the USD10,000- 15,000/ha range. 
• Its large exposure to Riau (67%) puts it at risk in the face of weak weather-led productivity, while valuations look fair at current levels.

Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2017-02-28

RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 1.90 Down 2.000