First Resources - Maybank Kim Eng 2018-11-11: Driven By Strong Output Growth


First Resources - Driven By Strong Output Growth

On track to meet full-year forecasts

  • First Resources' 3Q18 core earnings met 28%/29% of our/consensus full-year estimates, within expectations.
  • We make no changes to our earnings forecasts. Maintain BUY and unchanged Target Price of SGD2.00 on 17x 2018 PER, pegged at its 5-year historical mean.
  • We like First Resources for its medium-term growth prospects and cost efficiency, with it being one of the lowest cost producers in the region.

Strong production outweighed price decline

  • First Resources' 3Q18 core PATMI of USD39m (+22% y-o-y, +9% q-o-q) brings 9M18 core PATMI to USD103m (-1% y-o-y), at 73%/76% of our/consensus full-year estimates.
  • 3Q18 results were stronger y-o-y largely on stronger FFB (nucleus) output (+19% y-o-y, +25% q-o-q) which more than offset weak CPO ASP achieved of USD525/t (-9% y-o-y, -7% q-o-q) and PK ASP achieved of USD354/t (-17% y-o-y, -3% q-o-q).
  • As for downstream, which contributes to less than 10% to group EBITDA, we estimate its 3Q EBITDA margin at USD16/t (+6% y-o-y, -35% q-o-q), likely on high utilisation rate of its biodiesel and refinery plant which offsets inventory mark-to-market losses.

Third sequential quarters of double-digit growth

  • Fuelled by a high percentage of young trees entering prime maturity, FFB nucleus output growth rate remained strong. First Resources posted its third sequential quarter of double-digit y-o-y growth.
  • 9M18 FFB nucleus output of 2.29m MT (+20% y-o-y) is 75% of our full-year forecast, on track to meet (but potentially exceed) our full-year forecast of 3.04m MT (+13% y-o-y) and in line with First Resources’ +15% y-o-y (group) guidance.

Maintain earnings forecasts

  • Cost of production is under control. We estimate First Resources’ 9M18 all-in cost of production at USD280/t +1% y-o-y).
  • For the last quarter, we expect potentially weaker q-o-q results on lower CPO ASP and lower output, but potentially mitigated by some inventory drawdown (which will help boost sales due to net inventory build-up of ~38,000 MT in 9M18 [9M17: drawdown of ~14,000 MT]) and still positive downstream margins.

Risk Statements

  • There are several risk factors to our earnings estimates, price target, and rating for First Resources. Key risks to the palm oil sector and First Resources are:
    1. weather anomalies resulting in poorer-than-expected output growth,
    2. lower-than-expected CPO price achieved,
    3. negative policies imposed by import countries,
    4. unfriendly policies imposed by the Indonesian government on upstream or downstream segments,
    5. sharply lower crude oil prices which make palm biodiesel demand not viable, and
    6. weaker competing oil prices (such as for soybean and rapeseed).

Ong Chee Ting CA Maybank Kim Eng Research | 2018-11-11
SGX Stock Analyst Report BUY MAINTAIN BUY 2.000 SAME 2.000