First Resources Ltd - CIMB Research 2017-11-14: 3Q Below Expectations Due To Lower ASP Achieved

First Resources Ltd - CIMB Research 2017-11-14: 3Q Below Expectations Due To Lower ASP Achieved FIRST RESOURCES LIMITED EB5.SI

First Resources Ltd - 3Q Below Expectations Due To Lower ASP Achieved

  • First Resources' 9M17 core net profit was below expectations, making up only 61% of our and 65% of consensus’ full-year forecasts.
  • The weaker-than-expected earnings were due to lower ASP and higher inventory.
  • 3Q core net profit fell 14% yoy due mainly to lower processing profit and CPO prices.
  • We cut our earnings forecasts by 11-21% for FY17-19F to reflect lower CPO prices.
  • Maintain Add with a lower target price of S$2.13 (13x FY19F P/E).



9M17 core net profit below expectations 

  • First Resources’ (FR) 9M17 core net profit was below expectations at just 61% of our and 65% of consensus’ full-year forecasts. The weaker-than-expected results were due to lower-than-expected ASP achieved, as well as a net inventory build-up of 33,000 tonnes in 3Q17. 
  • We expect a stronger 4Q on the back of lower costs of sales and higher CPO sales arising from potential drawdown of inventory.


Weaker 3Q earnings due to lower ASP 

  • First Resources’s 3Q17 core net profit (excluding forex gains) fell by 14% yoy to US$30m as lower processing profit trumped higher plantation earnings. Plantation earnings grew 3% yoy/33% qoq in 3Q due mainly to higher FFB output (+8% yoy/36% qoq). However, this was partially offset by the 6% yoy/7% qoq decline in average CPO price achieved to US$576/tonne. 
  • Processing EBITDA fell 74% yoy/25% qoq in 3Q17 due to weaker refining margin per tonne of US$15 in 3Q17 vs. US$20 in 2Q17 and US$59 in 3Q16.


FFB output recovers from El Nino effect 

  • Plantation EBITDA jumped 34% yoy in 9M17, due mainly to higher CPO selling prices and FFB output. ASP achieved for CPO grew by 7.2% to US$609 per tonne. 
  • FFB production from its nucleus estates rose 19% yoy in 9M17, which represents a new record high output for FR. This was due to an increase in mature areas and higher FFB yield as El Nino effects waned.


Net build of stocks led to lower CPO sales volumes 

  • CPO sales volumes grew by 26% qoq to 187,511 tonnes in 3Q, lower than the group’s CPO output of 194,014 tonnes for the quarter. This was due to a net inventory build-up of 33,000 tonnes of palm products in 3Q17 vs. 4,000 tonnes in 3Q16.


Downstream division posted weaker earnings 

  • 3Q17 refinery and processing EBITDA fell 74%yoy/25% qoq to US$3m due to weaker refining margins. However, this division posted a 106% jumped in 9M17 EBITDA to US$14m due to higher margins achieved in 1H17. 
  • We estimate that EBIT per tonne for this division was US$22 in 9M17 vs. US$12 in 9M16.


Outlook for 4Q17 

  • First Resources expects FFB production in 4Q17 to grow at a slower pace compared to 3Q17 due to the high-base effect in 4Q16. It expects CPO price to be supportive in the near-term due to weaker than expected output growth, restocking by importing countries and palm oil’s attractive pricing relative to other edible oils. 
  • The group is of the view that the long-term fundamentals of the palm oil industry remain favourable.


Maintain Add but with lower TP to S$2.13 

  • We cut our FY17-19F earnings forecasts by 11-21% as we assign a higher discount to the group’s CPO price achieved against Rotterdam’s price. This and the rollover of our target price to end-2018 (based on unchanged average historical P/E of 13x) led us to cut our target price to S$2.13. 
  • We maintain our Add call due to the group’s estates’ young age profile. 
  • Key risks are lower CPO prices and production.




Ivy NG Lee Fang CFA CIMB Research | http://research.itradecimb.com/ 2017-11-14
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 2.13 Down 2.320



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