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

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

Maintain HOLD on lack of immediate catalyst 

  • 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. 
  • Maintain HOLD and TP of SGD1.97 on 17x 2017 PER, pegged at its 5-year mean.

Relatively weaker 2Q results within expectations 

  • 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).

2Q17 FFB growth (+14% YoY) slowed but still decent 

  • 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.

Maintaining our earnings forecasts 

  • 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 | 2017-08-13
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 1.970 Same 1.970