First Resources (FR SP) - Maybank Kim Eng 2018-02-27: Special Dividend Awaits

First Resources (FR SP) - Maybank Kim Eng 2018-02-27: Special Dividend Awaits FIRST RESOURCES LIMITED EB5.SI

First Resources (FR SP) - Special Dividend Awaits

Share price selldown overdone, Upgrade to BUY 

  • 2017 results are within expectations. For 2018, we expect FFB output recovery and new areas coming to maturity to drive e.+12% EPS growth.
  • Recent First Resources' share price weakness presents accumulation opportunity for this sector bellwether. The stock now trades at 1SD below its historical mean.
  • We upgrade First Resources to a BUY (from HOLD) with a new Target Price of SGD2.20 on 17x 2018 PER (5-year mean) as we roll forward our valuation year (previously SGD2.04 on 17x 2017 PER). First Resources is proposing a final (2.15cts) and special (3.4cts) DPS, bringing 2017 total DPS to 6.8 SG cents (2016: 3cts).

Strong upstream and downstream performance 

  • 2017 headline PATMI was USD138m (+10% y-o-y). Adjusted for Fair Value gain on biological assets, core PATMI grew 21% y-o-y to USD139m which met 99%/100% of our/consensus estimates. 
  • Its key contributor, the upstream division, enjoyed 6% growth in EBITDA to USD272m underpinned by higher FFB output (+13% y-o-y) and higher CPO ASP achieved of USD603/t (+3% YoY). Even its downstream division returned to the black with an EBITDA of USD19m and an estimated EBITDA margin of USD21/t (FY16: -USD2/t).

Still one of the lowest cost producer in the region 

  • Post El Nino, FFB output rebounded strongly by 13% y-o-y in 2017, driven by higher FFB yield (+4% to 17.5t/ha) and higher mature area (+8%). But 2017’s FFB growth was 3% below expectation as 4Q17 output growth slowed sharply. However, 4Q17 earnings did not disappoint due to inventory drawdown (-14,000 MT q-o-q). 
  • As for cost, First Resources’ unit cash cost of production was flattish y-o-y at USD217/t, one of the lowest in the region.

12% EPS growth in 2018 driven by output 

  • Following the results, we have tweaked our financial parameters and trim 2018-19E nucleus output by -2%/-3% (but still forecasting +17%/+8% output growth premised on post El Nino recovery and 18,000 ha (+9%) of total area coming into maturity). This led to ~4% decline in our 2017-18 PATMI forecasts. 
  • Despite that, we anticipate a 12%/11% core EPS growth for 2018-19. 
  • Our 2018 net CPO ASP assumption is unchanged at USD572/t (-5% y-o-y). We introduce our 2020 forecast.

Ong Chee Ting CA Maybank Kim Eng | 2018-02-27
Maybank Kim Eng SGX Stock Analyst Report BUY Upgrade HOLD 2.20 Up 2.040