First Resources - RHB Invest 2018-02-27: Surprise Special Dividend For 25th Anniversary

First Resources - RHB Invest 2018-02-27: Surprise Special Dividend For 25th Anniversary FIRST RESOURCES LIMITED SGX: EB5

First Resources - Surprise Special Dividend For 25th Anniversary

  • First Resources posted results that were slightly below expectations, coming in at 95% of our and 88% of consensus’ FY17 forecasts.
  • The surprise came in the form of a special dividend declared for its 25th anniversary. Net DPS for FY17 is at USD0.068, or a net dividend payout of 60%, implying net yield of 3.9%.
  • We reduce our FY18-19 forecasts by 11-14% to impute higher unit costs and lower downstream margins.
  • Maintain NEUTRAL call with revised Target Price of SGD1.75 (from SGD2.03, 0% upside), based on an unchanged 12x 2018 P/E and implies a fair USD13,000/ha EV/ha valuation.

FY17 core net profit below expectations

  • First Resources’ (FR) FY17 core net profit was below our and consensus’ expectations, comprising 95% of our and 88% of consensus’ FY17 earnings. The main difference was slightly higher-than-expected unit costs and weaker- than-expected downstream margins.
  • Surprise special dividend of USD0.034 was declared to celebrate the 10th anniversary of FR’s listing and 25 years since its establishment. This, together with its interim net DPS of USD0.0125 and final net DPS of USD0.0215 brings FY17 net DPS to USD0.068. The net payout of 60% implies a net yield of 3.9% pa. We do not expect this dividend payout to be repeated, and expect it to return to more normalised levels of 25-30% over the next few years.
  • FFB output grew 13.3% y-o-y in FY17, in line with our forecast and management guidance of 10-15%. FR will be holding an analyst briefing later today, where they will give guidance on output growth for FY18. For now, we maintain our FFB growth of 13.4% for FY18.
  • CPO price rose by 3% y-o-y in FY17, to average USD603/tonne, close to our USD612/tonne (pre-export tax) projection for FY17F. For every MYR100/tonne change in CPO price, we estimate its earnings would be impacted by 4-5% pa.
  • Downstream margins improved in 4Q17 to 2.7% (from 2.4% in 3Q17), resulting in FY17 EBITDA margins of 3.1%. This came on the back of higher selling prices (+6% y-o-y) and higher sales volumes (+13% y-o-y). We expect downstream margins to stay in the positive territory of 3-4% going forward, given the stabilising PK and PKO price trend.

Forecasts lowered.

  • We reduce our FY18-19 earnings forecasts by 11-14%, after increasing our unit cost estimates slightly by 5-10% and lowering our downstream EBIT margins by 0.5%-pt. We also introduce our FY20 forecasts.
  • Post earnings revision, our Target Price drops to SGD1.75 (from SGD2.03), based on an unchanged 12x 2018F P/E. This implies an EV/ha of USD13,000, in line with that of its peers’ range of USD10,000-15,000/ha. FR’s extensive exposure to Riau (67%) puts it at risk, in the face of weak weather-led productivity, while valuations look fair at current levels. We maintain our NEUTRAL recommendation on the stock.

Singapore Research RHB Invest | 2018-02-27
SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 1.75 Down 2.030