FIRST RESOURCES LIMITED (SGX:EB5)
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:
- weather anomalies resulting in poorer-than-expected output growth,
- lower-than-expected CPO price achieved,
- negative policies imposed by import countries,
- unfriendly policies imposed by the Indonesian government on upstream or downstream segments,
- sharply lower crude oil prices which make palm biodiesel demand not viable, and
- weaker competing oil prices (such as for soybean and rapeseed).
Ong Chee Ting CA
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2018-11-11
SGX Stock
Analyst Report
2.000
SAME
2.000