First Resources (FR SP) - Maybank Kim Eng 2017-05-12: 1Q Results Beat Estimates

First Resources (FR SP) - Maybank Kim Eng 2017-05-12: 1Q Results Beat Estimates FIRST RESOURCES LIMITED EB5.SI

First Resources (FR SP) - 1Q Results Beat Estimates

Capitalising on high CPO ASP to maximise sales 

  • 1Q17 core results beat expectations with high sales volume typically seen only in the 2H of the CY. FR capitalised on the CPO ASP upsurge in 1Q17 and maximised sales by drawing down ~46,000 MT of inventories. 
  • 1Q17 results may not be repeated in the remaining quarters with recent CPO price correction. We are keeping our earnings forecasts for now pending a briefing update. 
  • Maintain HOLD with an unchanged TP of SGD1.97 on 17x 2017 PER, pegged at its 5-year mean.

Lifted by high sales volume and high CPO ASP 

  • 1Q17 core PATAMI exceeded expectations as it met 37%/30% of our/ consensus full-year earnings estimates. 
  • The good 1Q17 core PATAMI of USD48m (+807% YoY, +1% QoQ) was due to high CPO ASP achieved (USD635/t, +34% YoY, +1% QoQ) and high sales volume. The high sales volume in 1Q17 was in turn due to strong FFB output recovery (+42% YoY, -18% QoQ) post El Nino impact, and huge drawdown of inventories (- 46,000 MT) to capitalise on the high CPO ASP. 
  • Meanwhile, its downstream division recorded higher earnings on improved EBITDA margins of USD29/t (1Q16: USD16/t; 4Q16: -USD35/t).

Output recovery will taper in coming quarters 

  • We believe FR’s 1Q17 phenomenal output growth (+42% YoY) will taper in the remaining quarters. At 624,688 MT, 1Q17 output made up 21.6% of our full-year forecast - on track to meet our +22% YoY nucleus output growth for 2017. 
  • Our output growth is already higher than FR’s +15% YoY (group) growth guidance. Furthermore, the high CPO ASPs in 1Q17 have already corrected somewhat in 2Q17 and will continue to remain under pressure in 2H17 when the industry’s output peaks.

Keeping our earnings forecasts for now 

  • Unlike previous FYs, we believe FR’s 2017 results have been pretty much front-loaded onto 1Q17. 
  • Our 2017 net CPO ASP forecast is unchanged at USD558/t (-5% YoY). 
  • Risks to our forecasts include CPO price volatility and weather anomalies impacting output.

Ong Chee Ting CA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-05-12
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 1.970 Same 1.970