First Resources - DBS Research 2018-05-15: Stronger Output-Driven Performance In Upcoming Quarters 

First Resources - DBS Vickers 2018-05-15:  stronger Output-driven Performance In Upcoming Quarters  FIRST RESOURCES LIMITED SGX: EB5

First Resources -  stronger Output-driven Performance In Upcoming Quarters 

  • Earnings dropped 42% on the back of high base last year. 
  • Lower y-o-y CPO prices dampened earnings. 
  • CPO and output recovery pattern will drive earnings in upcoming quarters. 
  • Maintain BUY with Target Price of S$2.18. 


Earnings dropped by 42% y-o-y to US$28m – slightly below our expectation.

  • The lower y-o-y earnings in 1Q18 were due to lower CPO prices. Note that last year represents a high base, with 2017 performance benefiting from the still high CPO prices in 1Q17 before dropping for the remaining quarters.

Revenue affected by lower CPO price, flat sales volume y-o-y.

  • Revenue reached US$135.6m (-30.2% y-o-y, -23% q-o-q), affected by lower ASP. 1Q18 CPO and PK ASP came in at US$588 per MT (-7% y-o-y, flat q-o-q) and US$525 per MT (-16% y-o-y, +1% q-o-q) respectively. 
  • Meanwhile, FR posted CPO and PK sales volumes of 181k MT (+10% y-o-y, -12% q-o-q) and 46.9k MT (+15% y-o-y, -5% q-o-q) respectively.

Double-digit output growth, trees yield improved y-o-y.

  • Output grew at double digits y-o-y. Total harvested fresh fruits bunches (FFB) grew by 12.4% y-o-y to 794k MT (- 10.4% q-o-q), implying an FFB yield of 4.1MT per hectare (1Q17: 4.0MT per hectare). 
  • Higher FFB output was followed by higher CPO and PK outputs of 192k MT (+19.2% y-o-y, -5.4% q-o-q) and 44.8k MT (+11.9% y-o-y, -12.6% q-o-q) respectively. Its oil extraction rate (OER) improved to 22.9% (1Q17: 22.4% ) despite third-party FFB purchases jumping 63% to 73.1kMT (8.4% of total processed FFFB). 


Improving 2Q18 sales volume will boost performance.

  • Sales volume performance should improve in 2Q18 on some inventory release from this quarter, coupled with a brighter CPO price outlook and stable operational costs for the upcoming quarter. Beyond this operational aspect, the group’s effective tax rate may be higher in 2018 arising from withholding tax expenses on dividend income received from foreign subsidiaries – still related to its 2017 special dividend. 
  • Beyond 2Q, FR’s performance will continue to be driven by yield recovery, with a seasonal upswing in output to take place in the second semester of this year. 
  • Moreover, we believe CPO prices will be supported by CPO’s pricing competitiveness vs. other edible oils, mainly soybean oil. This factor should underpin its earnings performance this year, on top of the fact that the positive sentiment on crude oil prices may act as a positive catalyst for CPO prices due to potentially higher biodiesel demand. 

Keeping our forecasts for now – eyeing 20% earnings growth y-o-y in 2018.

  • We retain our forecasts at this point given that we forecast for 20% y-o-y earnings growth to US$167m in 2018, mainly driven by its organic fruit production expansion. 


We have BUY rating with Target Price of S$2.18.

  • We maintain our BUY rating with a DCF-based Target Price of S$2.18 per share (WACC: 11.8%; TG: 3%). 
  • Our Target Price implies an FY18F PE of 15.0x, which is slightly higher than its peers – attributable to its stronger organic growth prospects arising from its younger plantation profile. 

William Simadiputra DBS Vickers | Rui Wen LIM DBS Vickers | 2018-05-15
SGX Stock Analyst Report BUY Maintain BUY 2.180 Same 2.180