First Resources - RHB Invest 2017-11-14: Helped By Lower Unit Costs

FIRST RESOURCES LIMITED EB5.SI

First Resources - Helped By Lower Unit Costs

As expected, First Resources’ 3Q17 earnings shrank QoQ, falling 57% from 2Q17, mainly due to lower product prices. Nevertheless, lower unit costs helped to buffer earnings, on the back of a still strong FFB output growth of 19% YTD-9M17.
We raise our FY17F-19F earnings by 7-9% to impute lower unit costs. Our forecasts are now 6-19% above consensus. Our TP is lifted to SGD2.13 (from SGD2.00, 9% upside), based on an unchanged 2018F target P/E of 13x, in line with historical averages. This implies an EV/ha of USD13,500/ha, in line with its regional peers.

First Resources' 9M17’s core net profit came in above expectations, comprising 85-93% of our and consensus’ FY17F earnings respectively.
The main differences came from the better-than-expected FFB output growth of 19% (vs our forecast of 17.4% and management’s guidance of 15%) and lower-than-expected CPO costs (estimated 9% YoY decline vs our projected flattish estimates).

However, output rose 36% QoQ, due to seasonality of the peak output period.
Despite the strong YTD output growth being slightly better than management’s guidance of a 15% for FY17 and our projection of 17.4%, we maintain our FFB growth forecast, as we expect growth to continue moderating in 4Q17.

Its 3Q17 transacted CPO price of USD576/tonne (pre-export tax) was by 7% lower QoQ and 5% lower YoY.
YTD, the 9M17 average price of USD609/tonne is line with our USD612/tonne (pre-export tax) projection for FY17F. For every MYR100/tonne change in CPO price, we estimate its earnings would be impacted by 4-5% pa.

Its downstream division remained in the black in 9M17, on the back of higher selling prices (+11.3% YoY) and despite the high feedstock costs. However, margins narrowed QoQ to 2.4% in 3Q17 (from 3% in 2Q17), due to lower QoQ product prices.
We expect downstream margins to stay in the positive territory going forward, given the stabilising PK and PKO price trend.

We raise our FY17-19 earnings forecasts by 7-9%, after lowering our unit cost estimates slightly to USD215-225/tonne.

Our TP is raised to SGD2.13 (from SGD2.00), based on an unchanged 2018F P/E of 13x, which is in line with its 5-year historical average. This implies an EV/ha of USD13,500, which is in line with its peers’, which trade in the USD10,000-15,000/ha range.
Its large exposure to Riau (67%) puts it at risk in the face of weak weather-led productivity, while valuations look fair at current levels.

Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2017-11-14

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