First Resources (FR SP) - UOB Kay Hian 2018-02-08: 4Q17 Results Preview ~ Expect Marginally Higher Q-o-q Earnings But Weaker Y-o-y

First Resources (FR SP) - UOB Kay Hian 2018-02-08: 4Q17 Results Preview ~ Expect Marginally Higher Qoq Earnings But Weaker Yoy FIRST RESOURCES LIMITED EB5.SI

First Resources (FR SP) - 4Q17 Results Preview ~ Expect Marginally Higher Qoq Earnings But Weaker Yoy

  • First Resources’s 4Q17 production statistics came in within expectations. 2017 FFB production growth of 13% y-o-y is within our expectation and management guidance of 10-15% y-o-y. 
  • We forecast core net profit of US$30m-34m in 4Q17. 
  • We expect marginally better q-o-q results on higher production, but weaker y-o-y earnings due to lower CPO ASP. 
  • Maintain HOLD. Target price: S$1.95. Entry price: S$1.75.


4Q17 FFB production within our expectation. 

  • First Resources’ (FR) 4Q17 production statistics came in within our expectations. We forecast a core net profit of US$30mUS$33m for 4Q17 (3Q17: US$30.2m, 3Q16: US$48.1m). 
  • We expect marginally better q-o-q results on the back of higher production, while y-o-y earnings are expected to come in lower due to exceptionally strong results in 4Q16 on the back of a higher CPO ASP. 
  • First Resources is targeting to release its 4Q17 results on 26 Feb 18 after the market close.


FFB production improved q-o-q and y-o-y in 4Q17. 

  • Fresh fruit bunch (FFB) nucleus production increased 5.2% q-o-q on the back of FFB yield recovering to 5.1 tonnes/ha in 4Q17 from 4.8 tonnes/ha in 3Q17. Meanwhile, FFB production inched up 1.4% y-o-y, mainly driven by an increase in mature areas. FFB yields were down y-o-y for 4Q17. 

FFB production growth of 13% y-o-y in 2017 met our expectations. 

  • FFB nucleus production reached 2.7m tonnes (+13.3% y-o-y) in 2017, meeting our expectation of 13% y-o-y growth. This is in-line with management’s FFB production growth guidance of 10-15% y-o-y for 2017.

CPO production improved q-o-q, but was weaker y-o-y in 4Q17. 

  • CPO production increased 4.8% q-o-q, but was lower y-o-y in 4Q17 mainly due to the decline in the oil extraction rate (OER).

Expect stable downstream operational results for 4Q17. 

  • Refining volume is expected to have remained high q-o-q and y-o-y on the back of higher upstream production in 4Q17. However, refining margin could be lower q-o-q and flat y-o-y. Thus, we are expecting a flat or marginal increase at best in refining earnings for 4Q17. 
  • Nevertheless, refining volume will be supported by contributions from the sale of biodiesel to Pertamina.

Biodiesel delivery back on track with small but positive net margin. 

  • Biodiesel take-up rate has normalised since Jun 17. Despite the biodiesel subsidy having been reduced to a pricing formula of CPO base price + US$100/tonne from CPO base price + US$125/tonne since May 17, First Resources still managed to register low-single-digit net margin in the biodiesel segment.

CPO prices flat q-o-q but weaker y-o-y in 4Q17. 

  • Dumai/Belawan CPO ASP was flat q-o-q, but weaker y-o-y in 4Q17. Dumai/Belawan CPO prices weakened since mid-Sep 17 from the high of US$722/tonne on 15 Sep 17 to the low of US$616/tonne on 22 Dec 17 mainly due to the faster-than-expected inventory build-up on weaker demand.


  • No change to our earnings estimates. 
  • We forecast EPS of 8.3 US cents, 8.7 US cents and 9.9 US cents for 2017-19 respectively.


  • Maintain HOLD and target price of S$1.95, based on 16x 2018F PE, or its 5-year mean PE. 
  • Entry price is S$1.75.


  • Stronger-than-expected FFB production. Stronger-than-expected production recovery will contribute to First Resources’s earnings.

Leow Huey Chuen UOB Kay Hian | Ooi Mong Huey UOB Kay Hian | 2018-02-08
UOB Kay Hian SGX Stock Analyst Report HOLD Maintain HOLD 1.950 Same 1.950