First Resources (FR SP) - Maybank Kim Eng 2017-10-10: Expect Flattish HoH Earnings

First Resources (FR SP) - Maybank Kim Eng 2017-10-10: Expect Flattish HoH Earnings FIRST RESOURCES LIMITED EB5.SI

First Resources (FR SP) - Expect Flattish HoH Earnings

Maintain HOLD 

  • We raise First Resources (FR)’s FY17 net profit forecast by 7% following revisions to our CPO ASP, FX and output assumptions, FY18-19E earnings by -2%/-5%. 
  • 2H17 earnings are likely to be flattish HoH as only 60% of fertilising work has been completed in 1H17 coupled with relatively low brought forward inventory. 
  • Trading at ~16x FY17 PER, we maintain our HOLD call despite a higher Target Price of SGD2.04 (+3.6%) based on unchanged 17x 2017 PER (5-year mean) following our earnings revisions.

Revising CPO ASP assumptions 

  • We raise our industry-wide CPO ASP forecast to MYR2,700/t (+12.5%) for 2017 and to MYR2,600/t (+4%) for 2018 as 9M17 FFB output has lagged industry’s expectation, leading to slower-than-expected stockpile buildup and therefore better-than-expected YTD-Sept CPO spot price.
  • However, after adjusting also for lower MYRUSD FX assumptions for FY17- 19 (-7.1%/ -9.4%/ -9.4%) and lower Indonesia’s domestic prices for CPO (vs Malaysia) achieved in 1H17, our net CPO ASP forecasts for FR are revised by +6.6% to USD595/t for FY17, -4.5% to USD572/t for FY18, and -7.6% to USD572/t for FY19.

Trimming our FY17 output assumptions by 5% 

  • First Resources (FR) posted a strong 1H17 FFB output growth of +27% YoY, in part due to the El Nino stress that resulted in last year’s base. We believe its 2H17 output growth will be on a decreasing trend, with 4Q17 posting its lowest YoY growth rate given the higher base in 4Q16 when recovery commenced. 
  • For FY17, First Resources (FR) has kept its full-year growth guidance of +15%. As such, we have cut our FY17E output growth to +16% YoY (from +22%) or by -5% in absolute terms to 2.75m MT. 
  • At our revised output forecast, its 1H:2H output ratio for FY17 will be in line with the historical average of 42:58. Our FY18 output growth forecast is now at +16% YoY.

Revising earnings 

  • Our CPO ASP, output and FX adjustments lead to FY17-19E net profit revisions by +7.4%/ -1.7%/ -5.4%. 
  • Our new Target Price of SGD2.04 (+3.6%) also incorporates a lower USDSGD rate (-3.6%).

Swing Factors


  • Better-than-expected output growth recovery, and CPO price achieved exceeding expectations.
  • Government friendly policies to encourage new planting, which will allow FR to resume its aggressive organic growth trajectory.
  • Higher dividend payouts as trees enter prime maturity.


  • Output growth or CPO price achieved came in below expectation.
  • Negative policies by government such as recent export levies, and higher-than-expected minimum wage increase, pressuring margins.
  • Extreme drought (like the recent strong El Nino) can have a lagged impact on output.
  • Sharp fall in CPO price or extreme CPO price volatility over a short period of time will likely hurt downstream margins.

Ong Chee Ting CA Maybank Kim Eng | 2017-10-10
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 2.04 Up 1.970