First Resources Ltd - CIMB Research 2017-05-11: Growing From Strength To Strength

First Resources Ltd - CIMB Research 2017-05-11: Growing from strength to strength FIRST RESOURCES LIMITED EB5.SI

First Resources Ltd - Growing from strength to strength

  • First Resources’ 1Q17 core earnings broadly in line, making up 28% of our full-year forecasts.
  • FFB output surged 42% yoy to a new record high in 1Q, as El Nino effect wanes.
  • This, coupled with higher CPO prices and refining margins, lifted 1Q earnings.
  • The group projects lower CPO price and higher output in 2H17.
  • Maintain Add with an unchanged target price of S$2.32 (13x FY18 P/E).

1Q17 core net profit broadly in-line with our estimates 

  • First Resources’ 1Q17 core net profit (excluding forex gains of US$1.8m) rose by 874% yoy, thanks to higher contribution from both its plantation and downstream segments.
  • We consider the 1Q results to be broadly in-line with our expectations and Bloomberg consensus at 28% and 30% of respective full-year forecasts.

FFB output in 1Q was a new record high 

  • Plantation EBITDA jumped 239% yoy, due mainly to the higher CPO selling prices and FFB output. ASP achieved for CPO grew by 34%/1% yoy/qoq to US$635 per tonne, broadly in line with the average CPO price in Belawan. FFB production from its nucleus estates rose 42% yoy in 1Q17, which represents a new record high 1Q output for FR.
  • This was due to an increase in mature areas and higher FFB yields.

Net draw down of stocks boosts 1Q CPO sales volumes 

  • CPO sales volumes grew by 8% yoy to 164,924 tonnes, which is higher than the group’s CPO output of 161,194 tonnes. This was due to a higher net inventory draw down of 46,000 tonnes of palm products in 1Q17 vs. 9,000 tonnes in 1Q16.

Downstream division returned to profitability 

  • Refinery and processing EBITDA turned around to post a profit of US$7.3m against a loss of US$8m in 4Q16 due to higher refining margins. 
  • We estimate that EBIT per tonne for this division grew by 83% to US$29 per tonne due to favourable profit margin.

Other key takeaways from 1Q results 

  • The group recorded forex gains of US$1.8m on 1Q17 due to the impact of foreign currency movement on monetary assets and liabilities of the subsidiaries. 
  • Effective tax rate of 25% in 1Q17 was lower than 1Q16’s effective tax rate of 40%, due mainly to lower non-tax deductible expenses. 
  • The group expects 17k ha of estates to come into maturity in 2017. Out of which, 13,060 ha was captured in 1Q17.

Outlook for the rest of 2017 

  • The group revealed that CPO prices have moderated since early 2017 on improving supply prospects for palm oil and other edible oils as well as muted demand. It expects the lower prices to persist as production continues to recover in 2H17. 
  • The group indicated that production in 2Q17 is expected to slow down before recovering in 2H17.

Maintain Add due to its attractive estates profile 

  • We are keeping our earnings forecasts and target price of S$2.32 (based on an FY18 P/E of 13x, its average historical P/E). 
  • We maintain our Add call due to the group’s estates’ young age profiles (average age of 11 years and 42% of planted estates below seven years old).
  • Key re-rating catalyst is stronger-than-expected earnings. 
  • Key risks are lower CPO prices and production.

Ivy NG Lee Fang CFA CIMB Research | 2017-05-11
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 2.320 Same 2.320