First Resources (FR SP) - DBS Research 2017-07-19: Pekanbaru Plantation Site Visit Takeaways

First Resources (FR SP) - DBS Vickers 2017-07-19: Pekanbaru Plantation Site Visit Takeaways FIRST RESOURCES LIMITED EB5.SI

First Resources (FR SP) - Pekanbaru Plantation Site Visit Takeaways

  • Recent visit to First Resources’ operations in Riau.
  • Tree yield recovery momentum seen on plantation sites.
  • Low-cost structure aided by proximity of CPO mills.
  • We have a BUY rating with TP of S$2.15.

Visit to First Resources’s operations in Riau. 

  • We recently paid a visit to First Resources's (FR) operations in Pekanbaru, Riau, including a 4,400-ha mature oil palm plantation with an average age of 16 years. We see the fruit yield recovery momentum continuing for the next six months. 
  • We also visited CPO mill which is located within the estate, as well as FR’s Research and Learning Centre.

Low-cost structure aided by proximity of CPO mills.

  • FR’s low-cost structure is aided by the proximity of its CPO mills. Fresh fruit bunches (FFBs) are delivered to the mills within 24 hours to reduce the amount of free fatty acids being built up. Hence, proximity of CPO mills helps to lower transportation costs and improve yield.

Reiterate BUY with TP of S$2.15. 

  • We continue to like FR for its relatively young age profile of ~11 years and expect the company to book a strong 41% earnings growth this year on the back of volume recovery. 
  • The stock is currently trading close to -1SD from its average historical PE. We believe consistent earnings delivery in 1Q17 and 2Q17 should push the First Resources' stock price higher.

William Simadiputra DBS Vickers | http://www.dbsvickers.com/ 2017-07-19
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 2.150 Same 2.150