First Resources (FR SP) - Maybank Kim Eng 2017-11-14: 3Q Results Within Our Expectation

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FIRST RESOURCES LIMITED EB5.SI

First Resources (FR SP) - 3Q Results Within Our Expectation

Expect potentially better results in the final quarter 

• First Resources' 3Q17 core earnings met 23%/21% of our (within)/consensus (below) full-year estimates. Results would have been better had it not for the sharp inventory build-up and lower-than-expected CPO ASP achieved during the quarter. 
• We maintain our EPS forecasts pending an update. Maintain HOLD and unchanged TP of SGD2.04 on 17x 2017 PER (5-year mean).

Sharp inventory build-up, low CPO ASP hurt 3Q17 

• First Resources'3Q17 core PATMI of USD32m (-11% YoY, +38% QoQ) brings 9M17 core PATMI to USD104m (+54% YoY), at 74%/67% of our/consensus full-year estimates. 
• 3Q17 results were weaker YoY on inventory build-up (+33,000 MT; 3Q16: -4,000MT; 2Q17: -1,000 MT), lower-than-expected CPO ASP achieved of USD576/t (-6% YoY, -7% QoQ) and lower PK ASP achieved of USD425/t (-23% YoY, +2% QoQ). This offset recovery in FFB (nucleus) output (+8% YoY, +36% QoQ) post El Nino. 
• As for downstream division, we estimate a lower 3Q17 EBITDA margin of USD15/t (-74% YoY, -25% QoQ).

9M17 FFB output on track to meet full-year forecast 

• 3Q17’s FFB nucleus output growth rate has been decelerating compared to earlier quarters. 
• 9M17 FFB nucleus output of 1,906,068MT (+19% YoY) is 69% of our full-year forecast, on track to meet our full-year forecast of 2.75m MT (+16% YoY) and in line with than FR’s +15% YoY (group) growth guidance. 
• First Resources guides that nucleus FFB output growth in 4Q17 over 4Q16 is expected to be even slower than 3Q17’s +8% YoY.

Maintain HOLD 

• We estimate First Resources’s 9M17 all-in cost of production at USD278/t (-9% YoY). The lower YoY cost of production may be an indication that FR has yet to substantially complete its fertilising application in 9M17 (1H17: ~50% done). 
• Nonetheless, 4Q17 results could still be better QoQ, potentially to be lifted by some inventory drawdown (boosting sales), and higher QoQ FFB output. 
• While we like First Resources for its strong long term fundamentals, current year valuation is now close to its 5-year mean of ~17x.

Ong Chee Ting CA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-11-14

Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 2.040 Same 2.040