First Resources (FR SP) - UOB Kay Hian 2018-05-15: 1Q18 Below Expectation Due To Lower-than-expected Sales Volume

First Resources (FR SP) - UOB Kay Hian 2018-05-15: 1q18 Below Expectation Due To Lower-than-expected Sales Volume FIRST RESOURCES LIMITED SGX: EB5

First Resources (FR SP) - 1Q18 Below Expectation Due To Lower-than-expected Sales Volume

  • First Resources’ 1Q18 results underperformed our expectation on weaker-than-expected CPO sales volumes on the back of later deliveries, which translated into higher inventory. The weaker y-o-y earnings were due to lower CPO and PK ASPs.
  • Downstream operations slipped into the red on weak refining margin.
  • Maintain EPS forecasts as we expect a better 2Q18 on the inventory drawdown. 2H18 should see higher sales volumes.
  • Maintain HOLD. Target price: S$1.60. Entry price: S$1.40.


  • Revenue down q-o-q and y-o-y for 1Q18. First Resources’ (FR) weaker q-o-q revenue was mainly due to lower CPO sales volumes despite a flat CPO ASP. CPO sales volume in 1Q18 was behind CPO production due to an inventory build-up. Meanwhile, First Resources’ y-o-y performance was mainly dragged down by a weaker CPO ASP despite better y-o-y fresh fruit bunch (FFB) production.
  • 1Q18 net profit weaker qoq and yoy, in line with the decline in revenue. Excluding forex gains, core net profit was at US$25mm (-28.7% q-o-q, -45.8% y-o-y) for 1Q18. The results were below our expectation of US$29m-US$32m. The negative variance was mainly due to lower-than-expected CPO sales volume on an inventory build-up in 1Q18.
  • Plantation and palm mills: Weaker qoq and yoy in 1Q18. This division reported an EBITDA of US$69m (-4.1% q-o-q, -9.2% y-o-y). The q-o-q drop in EBITDA was mainly due to weaker q-o-q sales volume despite a flat CPO ASP. Meanwhile, the weaker y-o-y performance from this division mainly came on the back of a lower CPO and palm kernel (PK) ASP.
  • Refining and processing: Slipped into the red in 1Q18. This division reported an EBITDA loss of US$0.7m in 1Q18 (4Q17: US$4.7m, 1Q17: US$7.3m), mainly due to thin margins and weaker refined products sales volume. Instead of further processing its CPO volumes, First Resources had to sell more of its raw CPO in 1Q18 due to a weak refining margin. The integrated model gives First Resources the flexibility to capture better margins from upstream or downstream operations.


  • Maintain FFB production growth forecasts for 2018. 1Q18 FFB nucleus production grew 13% y-o-y or accounted for 22% of our full-year estimate (1Q10-1Q17: 18.6-22.0% of full-year production). We maintain our FFB production growth forecast of 18% y-o-y for 2018, slightly higher than management’s guidance of 10-15%. First Resources’ FFB production growth will be supported by a production recovery at its estates in Riau and West Kalimantan.


  • We maintain our 2018-20 net profit forecasts for now, pending details from a briefing. We also expect better 2Q18 results on an increase in CPO sales volume with inventory being drawn down. We forecast EPS of 8.7 US cents 10.1 US cents and 11.3 US cents for 2018-20 respectively.


  • Maintain HOLD and target price of S$1.60, based on 13x 2018F PE, or its -1SD of 5- year mean PE. Entry price is S$1.40.


  • Better-than-expected CPO prices. First Resources’ earnings are still largely driven by upstream operations and this makes its earnings highly sensitive to CPO prices. Any increase in CPO selling prices from our base case of RM2,400/tonne would be positive to earnings.
  • Stronger-than-expected FFB production. Stronger-than-expected production recovery ute to First Resources’ earnings.

Leow Huey Chuen UOB Kay Hian | Ooi Mong Huey UOB Kay Hian | 2018-05-15
SGX Stock Analyst Report HOLD Maintain HOLD 1.600 Same 1.600