First Resources Ltd - CGS-CIMB 2018-05-14: 1Q18 Earnings Impacted By Lower CPO Prices And Inventory Build-up

First Resources Ltd - CGS-CIMB 2018-05-14: 1q Earnings Impacted By Lower Cpo Prices And  Inventory Build-up FIRST RESOURCES LIMITED SGX: EB5

First Resources Ltd - 1Q18 Earnings Impacted By Lower CPO Prices And Inventory Build-up

  • First Resources’ 1Q18 core net profit is broadly in line with our expectations but below consensus forecasts.
  • 1Q18 earnings impacted by lower ASPs for palm products and inventory build-up.
  • CPO sales volume impacted by net inventory build-up of 37,000 tonnes in 1Q18.
  • We project stronger earnings in subsequent quarters on the back of higher output, better ASPs for palm products and improved downstream margins.
  • Maintain ADD with an unchanged target price of S$2.03 (15x CY19F P/E).



1Q18 results in line with our expectations but below consensus’

  • First Resources’ (FR) 1Q18 core net profit of US$25m accounted for 18% of our full-year forecast and 16% of the Bloomberg consensus number. We consider the results to be broadly in line with our expectations but below consensus projections, as we expect sales volumes and ASPs for palm products to improve in subsequent quarters. 
  • As expected, no dividend was declared in 1Q18.


Inventory build-up and lower ASP led to weak 1Q18

  • First Resources’ 1Q18 core net profit (excluding forex gains and fair value losses of biological assets) fell 46% y-o-y to US$25m due to lower plantation and downstream earnings. 
  • The weaker plantation earnings were due to lower CPO and PK prices achieved and effects of inventory build-up which led to lower sales volumes. Its refinery and processing division reported a loss of US$1m in 1Q18 from a profit of US$7m in 1Q17 due possibly to refining margin being impacted by India’s move to raise import duties on palm oil.

FFB output grew 12.4% due to improved yields and new areas

  • Plantation EBITDA fell 9% y-o-y in 1Q18, due mainly to lower CPO selling prices and higher inventory level. ASP achieved for CPO and PK fell by 7% and 16% to US$588 per tonne and US$526 per tonne, respectively, in line with the lower prices in international markets. 
  • FFB production from its nucleus estates rose 13% y-o-y in 1Q18, representing a new record high output for FR in 1Q, due to a rise in mature areas and higher FFB yield. The group’s new mature area grew by 15k ha y-o-y in 1Q18.


Net inventory build-up led to higher CPO sales volumes

  • CPO sales volumes grew 10.3% y-o-y to 181,868 tonnes in 1Q18, lower than the group’s CPO output of 192,193 tonnes for the quarter. This was due partly to the effects of a net inventory build-up of 37,000 tonnes of palm products in 1Q18 (1Q17: drawdown of 46,000 tonnes).


Outlook for the rest of the year

  • The group revealed that it expects a seasonal upswing in production in 2H18. This may weigh on CPO prices though this will be partially offset by the recent rally in crude oil prices and China’s proposed import tariff on US soybean which are seen as supportive of palm oil demand and prices. 
  • The removal of EU anti-dumping duties on several Indonesian biodiesel players, including First Resources, and supportive domestic biodiesel blending mandate is positive for biodiesel demand prospects as well.


Maintain ADD with unchanged Target Price of S$2.03

  • We project stronger earnings in future quarters driven by better palm products prices and production. As such, we are keeping to our ADD call and target price (which is based on historical average P/E of 15x) as we are positive on the group’s future earnings prospects due to its young age profile. 
  • Potential re-rating catalysts are better-than-expected production and earnings. 
  • Key risks are lower CPO prices and production.





Ivy NG Lee Fang CFA CGS-CIMB | https://research.itradecimb.com/ 2018-05-14
SGX Stock Analyst Report ADD Maintain ADD 2.030 Same 2.030



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