First Resources - RHB Invest 2017-11-15: Lowering FY17 FFB Output Guidance

First Resources - RHB Invest 2017-11-15: Lowering FY17 FFB Output Guidance FIRST RESOURCES LIMITED EB5.SI

First Resources - Lowering FY17 FFB Output Guidance

  • First Resources has toned down its FFB growth guidance for FY17 to 10- 15% (from 15%), as output growth has slowed down faster than expected. Nevertheless, 4Q17 is likely to still be its peak quarter for the year, based on its current guidance. 
  • Going into FY18, new areas coming into maturity would help to support earnings and FFB growth – although this would be slightly offset by higher unit costs, as minimum wages and fertiliser prices are on the rise. 
  • Maintain NEUTRAL. Our unchanged SGD2.13 TP implies an EV/ha of USD13,500, in line with that of its peers.

Peak production quarter still to come. 

  • First Resources’ FFB output growth moderated in 3Q17, rising 7.9% YoY. This brought its 9M17 growth to 27%. 
  • Due to the delayed effects of El Nino, the company has reduced its annual FFB output growth guidance for FY17 to 10-15% (from 15% previously), despite recording a 27% YoY increase in 1H17. This implies that the peak quarter would still be in 4Q17, with production anticipated to be slightly higher QoQ. 
  • We leave our FFB growth forecasts intact, at 17.4%, for FY17.

New maturing areas to support FFB growth. 

  • For FY18-19, we are maintaining our 7-10% YoY respective FFB growth projection on the back of an additional 18,000ha of new areas coming into maturity in FY18.
  • We estimate unit costs dropped by 9% YoY in 9M17. However, this could be levelled by the year-end, since First Resources has not completed its fertiliser application for the year yet. As such, we keep our cost assumptions of USD220- 230/tonne for FY17, in line with management’s guidance.

Downstream division margins are narrowing. 

  • In 3Q17, the company’s refinery operated at a 79% utilisation rate – similar to 2Q17 – with an EBITDA margin of 2.4% (vs 3% in 2Q17). The decline was due to lower selling prices as well as the lower pricing formula for biodiesel. 
  • We expect downstream margins to remain at 2-5% for the rest of the year.

Biodiesel realisation of 75% for May-Oct 2017 allocation. 

  • First Resources only realised 75% of its May-Oct 2017 biodiesel allocation of 38,000 kilolitres, due to an industry-wide slowdown in demand. For the Nov-Apr 2018 period, it has received an allocation of 35,000 kilolitres, which is down 8%. 
  • The company continues to record positive margins from these operations.

No change to forecasts. We leave our forecasts intact.

  • Still NEUTRAL on this stock. Our TP remains at SGD2.13, based on an unchanged 2018F P/E of 13x, in line with its 5-year historical average. This implies an EV/ha of USD13,500, which is in line with that of its peers. Its peers are trading in the USD10,000-15,000/ha range. 
  • First Resources’ extensive 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 | 2017-11-15
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 2.130 Same 2.130