First Resources (FR SP) - Maybank Kim Eng 2017-08-13: Weaker 2Q Within Expectations

FIRST RESOURCES LIMITED EB5.SI

First Resources (FR SP) - Weaker 2Q Within Expectations

First Resources' 2Q17 earnings met 18%/15% of our/consensus full-year estimates - within expectations, as we highlighted last quarter that its strong 1Q17 results were front-loaded on inventory drawdown.
We are keeping our earnings forecasts anticipating better quarters ahead.

2Q17 core PATMI of USD23m (-52% QoQ, -11% YoY) was sharply lower QoQ as FR had a net inventory drawdown of 46,000 MT in 1Q17 to capitalize on high refined palm oil prices. In 2Q1, inventory drawdown was merely 1,000 MT.
While CPO ASP achieved in 2Q17 was -2% lower QoQ, sales volume declined much more (-10%), and PK ASP fell -33% QoQ.
We suspect higher fertilisation activity may have also contributed to lower profitability in 2Q17. And its 2Q17 effective tax rate of 34% was unusually high.
Meanwhile, its downstream division recorded decent EBITDA margins of USD20/t (2Q16: -USD40/t; 1Q17: USD29/t).

1Q17 phenomenal FFB nucleus output growth (+42% YoY) was not repeated in 2Q17 (+14% YoY). 1H17 FFB nucleus output of 1,167,670MT (+27% YoY) have met 40% of our full-year forecasts, but below its historical 1H:2H 42:58 output trend.
Nonetheless, we are keeping our +22% YoY nucleus output growth forecast for 2017, which is higher than FR’s +15% YoY (group) growth guidance.

CPO ASP has peaked in 1Q17 and corrected somewhat in 2Q17. But there is still downside in 2H17 when industry’s output peaks seasonally. 1H17 core PATMI of USD72m (+127% YoY) met 55% of our full-year forecasts.
We are keeping our earnings forecasts for now anticipating seasonally higher output in 2H17 to offset lower CPO ASP.
An interim DPS of 1.25 SG cents have been announced (ex-date 5 Sept).

Ong Chee Ting CA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-08-13

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