First Resources - Maybank Kim Eng 2018-12-13: A Well-Managed Planter


First Resources - A Well-Managed Planter

A safer bet among planters

  • We cut our FY18-20E EPS by 9%/18%/12% mainly on our lower industry-wide CPO ASP assumptions. We roll forward our valuation base year to FY19 from FY18 to derive a revised Target Price of SGD2.10 (previously SGD2.00) on unchanged 17x PER peg, its 5-year historical mean.
  • We continue to like First Resources for its medium-term growth prospect and cost efficiency. BUY.

Cutting CPO ASP forecasts in USD by 7-10%

  • Following the recent weakness in CPO prices on ample palm oil supply amidst bumper harvest in Indonesia, we have revised down our industry-wide 2018-20F CPO ASP forecasts to MYR2,250/t (from MYR2,450/t, -8%), MYR2,350/t (-6%) and MYR2,500/t (-4%). But given the weakness in MYR against USD, the cut in our 2018-20E CPO ASPs in USD terms are steeper, to USD558/t (-10%), USD573/t (-10%), and USD610/t (-7%).
  • Positively, the impact of lower CPO ASP is partly mitigated by the recent revision to Indonesia’s palm oil export levy whereby export levy is exempted when CPO price is below USD570/t and only to be reinstated in full when CPO price exceeds USD619/t. However for First Resources, operational upstream earning gains (from lower export levies) will be offset by lower downstream margins (due to higher feedstock costs), especially in FY19.

2018 output forecast raised marginally

  • 9M18 FFB nucleus output of 2.29m MT (+20% y-o-y) was 75% of our full-year forecast. Management guides for a still decent 4Q18 output; we now tweaked our FY18 output growth forecast (+13% y-o-y) to be inline with First Resources’ +15% y-o-y guidance.
  • In absolute terms, we raised our FFB output estimates by +1% for FY18. Our FY19-20 output forecasts are unchanged.

Weathers the rough times better with its low cost

  • Following revisions to our CPO ASPs, tweak in FY18 output and some cost assumptions, our FY18-20E EPS are cut by 9%/18%/12%.
  • We continue to like First Resources for its medium-term growth outlook as we project a +11% 3-year FY17-20F output CAGR.
  • First Resources is also one of the lower cost producers in the region with all-in operating cost of production of ~MYR1,000/t in FY17.

Risk statement

  • There are several risk factors to our earnings estimates, price target, and rating for First Resources (FR). Key risks to the palm oil sector and FR 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 | https://www.maybank-ke.com.sg/ 2018-12-13
SGX Stock Analyst Report BUY MAINTAIN BUY 2.10 UP 2.000