First Resources - RHB Invest 2018-05-15: Inventory Build-up Holds Back Earnings

First Resources - RHB Invest 2018-05-15: Inventory Build-up Holds Back Earnings FIRST RESOURCES LIMITED SGX: EB5

First Resources - Inventory Build-up Holds Back Earnings

  • Maintain NEUTRAL, while our unchanged Target Price of SGD1.75 – offering a 9% upside – is based on 12x 2018F P/E, which is in line with the historical average.
  • Due to an inventory build-up of 37,000 tonnes of CPO, First Resources’ 1Q18 results are lower than expected. If we assume the inventory is sold off at 1Q18’s average CPO selling price, 1Q18 earnings would have comprised 21-23% of forecasts, which would be deemed as being largely in line.
  • We hold on to our forecasts for now, pending more information from the analyst briefing later today.

1Q18 core net profit came in below expectations,

  • First Resources' 1Q18 core net profit came in below expectations, comprising 14-16% of our and consensus’ FY18 earnings. The main difference was a reversal into negative territory for the downstream division, and a build-up of 37,000 tonnes of CPO inventory during the quarter (vs a drawdown of 46,000 tonnes in 1Q17). 
  • If we assume the 37,000 tonnes of CPO was sold in 1Q18 at the same achieved selling price of USD588/tonne, its 1Q18 earnings would have made up 21-23% of the company’s and our FY18 earnings forecasts – which would be considered as being largely in line.
  • FFB output grew 13.1% y-o-y in 1Q18, in line with our forecast and management’s guidance of 10-15%. We maintain our FFB growth at 13.4% for FY18.
  • CPO price declined by 7.4% y-o-y in 1Q18 to average USD588/tonne – which is slightly below our USD606/tonne projection for FY18. For every MYR100/tonne change in CPO price, we estimate its earnings would be impacted by 4-5% pa.
  • Downstream margins reversed into the red in 1Q1, ie at -0.6% (compared with 2.7% in 4Q17 and 4% in 1Q17). This came on the back of lower selling prices (-11.3% y-o-y) and lower sales volumes (-20.4% y-o-y). We are keeping our downstream forecasts, which assume positive margins of 3-4% going forward, pending more information from the analyst briefing to be held later today.


Forecasts maintained for now.

  • We are maintaining all projections for now. If all the CPO inventory build-up is sold, the company’s earnings would be considered as being largely in line.
  • No change to our Target Price of SGD1.75, which is 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. First Resources’ 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. 
  • Our preferred pick for a Singapore plantation stock is Wilmar (WIL SP, BUY, TP: SGD3.59).






Singapore Research RHB Invest | https://www.rhbinvest.com.sg/ 2018-05-15
SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 2.030 Same 2.030



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