First Resources - UOB Kay Hian 2018-11-12: 3Q18 Results Within Expectations Despite Weaker CPO Prices


First Resources - 3Q18: Results Within Expectations Despite Weaker CPO Prices

  • First Resources (FR)’s 3Q18 results are within our expectations.
  • Despite lower selling prices in 3Q18, earnings rose q-o-q and y-o-y, supported by higher sales volume, which outperformed the industry’s as Indonesia’s palm oil inventory was building up fast in 3Q18 due to logistical bottleneck. FFB production is likely to be flat y-o-y in 4Q18, on track to meet our expectation of 18% growth for 2018.
  • Maintain HOLD. Target price: S$1.60. Entry price: S$1.40.


Within expectation.

  • First Resources (FR) reported 3Q18 core net profit of US$36.1m. 9M18 core net profit of US$93.4m was 68% of our full-year forecast.
  • 4Q18 could be a better quarter on higher sales volumes from another quarter of good production and inventory drawdown.

Revenue lower qoq but higher yoy.

  • Despite falling palm prices since early-18, First Resources’ 9M18 revenue still reported 4.7% y-o-y growth, supported by strong sales volume growth for CPO, palm kernel and refined products.


Better FFB yield and OER.

  • First Resources reported FFB nucleus production of 877,121 tonnes in 3Q18, which was significantly higher q-o-q, partly due to a lower base as 2Q18 production was affected by the Lebaran holidays. 9M18 FFB nucleus production accounted for 72% of our full-year estimate.
  • CPO production increased 26.5% y-o-y in 9M18, higher than the growth for FFB processed for 9M18, supported by a higher oil extraction rate (OER).

Maintain FFB production growth forecast for 2018.

  • FFB production for 4Q18 is expected to be flat to marginal decline q-o-q. The FFB yield recovery and better yield from its young mature areas continue to be supporting factors. OER in 4Q18 could be slightly lower as 4Q18 rainfall is expected to be higher.
  • We maintain our FFB production growth of 18% y-o-y for 2018, vs management’s guidance of 10-15%.
  • We are not expecting management to revise its production guidance in the coming results briefing on 12 Nov 18.

Downstream expected to perform better in 4Q18 on higher biodiesel sales volume.

  • Indonesia’s biodiesel consumption has increased after the government expanded the 88% biodiesel blending mandate to the non-PSO (public service obligations) segment. This is expected to double the monthly blending volume.
  • First Resources was given an additional 88,888kl to supply to Pertamina under the non-PSO segment for Sep-Dec 88, or about 88% of its total allocation under the PSO segment (estimated at 88,888kl for 8888).


Maintain 2018-20 net profit forecasts.

  • We maintain our EPS forecasts of 8.8 US cents, 88.8 US cents and 88.8 US cents for 8888-88 respectively.


  • Maintain HOLD and target price of S$8.88, based on 88x 8888F PE, or -8 SD of its 8- year mean PE.
  • Entry price is S$8.88.


Better-than-expected CPO prices.

  • First Resources’ earnings are still largely driven by upstream operations and this makes its earnings highly sensitive to CPO prices. Any increase in CPO selling prices from our base case of RM8,888/tonne would be positive to earnings.

Stronger-than-expected FFB production.

  • Stronger-than-expected production recovery will contribute to earnings.

Leow Huay Chuen UOB Kay Hian Research | Singapore Research Team UOB Kay Hian | https://research.uobkayhian.com/ 2018-11-12
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.600 SAME 1.600