First Resources - RHB Invest 2018-08-02: Trade War Jitters

First Resources - RHB Securities Research 2018-08-02: Trade War Jitters FIRST RESOURCES LIMITED SGX:EB5

First Resources - Trade War Jitters

  • Maintain NEUTRAL call and Target Price of SGD1.60, 1% downside. 
  • We believe CPO prices have overreacted negatively to the trade war and expect to see some respite in 4Q18, post seasonal peak. However, given the larger-than-expected price reaction, we are cutting our CPO price assumptions for 2018-2019 to MYR2,400-2,500. 
  • Our earnings have been cut by 10-13% for 2018F-2020F. Our valuations have been rolled over to 2019 and we lower our P/E target to 11x from 12x, based on regional sector valuations.

Trade war still affecting sentiment.

  • Negative sentiment surrounding the trade war and the recent strength of the MYR have resulted in CPO prices falling to low levels of MYR2,100-2,200/tonne. While we think the negative reaction is overdone, we do not expect much price recovery over the next few months, as we head towards the seasonal peak output period. 
  • We however expect some price recovery in 4Q18, once the peak production period is over and the real impact of the trade war starts coming through.

~ ~ Where SG investors share

Revising CPO prices.

  • Given the magnitude of the CPO price decline, we no longer believe that our previous CPO price averages for 2018-2019 are achievable. We are therefore reducing our price projections to MYR2,400/tonne for 2018 (from MYR2,550) and to MYR2,500/tonne for 2019 (from MYR2,700). 
  • With the cut in price assumptions, our earnings for stocks under our coverage have been reduced accordingly. We highlight that the CPO price average does not include the impact of export taxes, which will reduce recognised selling prices further.


  • Risks include significant changes in the crude oil price trend that may result in a reversal of CPO and other vegetable oil prices, weather abnormalities that may result in an oversupply or undersupply of vegetable oils, significant changes in the demand for vegetable oils caused by changes in economic cycles or price dynamics, and further strengthening of the MYR past our projected MYR4/USD for 2018, which would result in lower CPO prices given the inverse relationship.


  • Post our CPO price revisions, we cut our earnings forecasts for 2018F-2020F by 10-13%.

Recommendation and valuation.

  • We roll over our valuations to 2019 and lower our target P/E to 11x from 12x to be in line with current sector valuations. 
  • Our Target Price is largely unchanged at SGD1.60, and implies an EV/ha of USD13,000, which is in line with its peers that are trading at between USD10,000-15,000/ha. 
  • We maintain our NEUTRAL recommendation on First Resources, as we believe valuations are fair at current levels.

Singapore Research RHB Securities Research | 2018-08-02
SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 1.600 Same 1.600