First Resources - Maybank Kim Eng 2018-05-15: Delay In Output Delivery A Drag To 1Q18 Earnings; Still In-line

First Resources - Maybank Kim Eng 2018-05-15: Delay In Output Delivery A Drag To 1q18 Earnings; Still In-line FIRST RESOURCES LIMITED SGX: EB5

First Resources - Delay In Output Delivery A Drag To 1Q18 Earnings; Still In-line

Better quarters ahead especially in 2H18

  • Unlike 2017’s results where earnings were front-loaded, First Resources is off to a slow start in 1Q18 on inventory build-up, lower prices and downstream losses. Earnings will likely be backloaded this year when output peaks seasonally in 2H18. 
  • As for 2Q18, bottom line could be moderated by higher withholding tax expense payable. Our earnings forecasts are unchanged. 
  • Maintain BUY and Target Price of SGD2.20 on 17x 2018 PER (5-year mean).

Off to a relatively slow start, still in-line

  • First Resources’ 1Q18 core PATMI of USD28m (-43% y-o-y, -23% q-o-q) met 18% of our/ consensus full-year estimates, within expectation. The 1Q18 results were off to a slow start on net inventory build-up of ~37,000 MT (vs drawdown of ~46,000 MT in 1Q17) and lower CPO ASPs achieved of USD588/t (-7% y-o-y, flat q-o-q). 
  • Operationally, 1Q18 FFB nucleus output grew 13% y-o-y (-9% q-o-q) but product sales was lower which led to inventory build-up. We suspect this is merely due to timing of shipment delivery which will be subsequently recognised in 2Q18. 
  • As for downstream, the refining environment was challenging in 1Q18 as FR posted a LBITDA of USD0.7m (1Q17: EBITDA of USD7m) or –USD4/t margin (1Q17: +USD29/t).

FFB output on track for 17% full-year growth

  • 1Q18 FFB nucleus output was off to a good start as it met 23% of our full- year forecast. This compares favourably against the 20% average recorded for Q1 in the past 7 years. Thus, we are keeping our FY18’s +17% y-o-y FFB growth forecast, higher than First Resources’ guidance of +13%.

Earnings likely to be much stronger in 2H18

  • Our FY18E’s +12% y-o-y earnings growth is on the back of higher output on post El Nino recovery and 16,000ha nucleus area (+11%) coming into maturity. Earnings are likely to be sharply stronger in 2H18. 
  • Meanwhile, its 2Q18 earnings are likely to be dragged by higher effective tax rate due to the effects of withholding tax expenses. Our 2018 net CPO ASP forecast remains at USD572/t (-5% y-o-y). 
  • Downside risks to our earnings forecasts are weaker-than-expected output and CPO price, unexpected sharp decline in fossil fuel prices rendering weaker biodiesel demand.

Ong Chee Ting CA Maybank Kim Eng | 2018-05-15
SGX Stock Analyst Report BUY Maintain BUY 2.200 Same 2.200