First Resources - Maybank Kim Eng 2019-05-15: Slow Start Indeed To The Year

FIRST RESOURCES LIMITED (SGX:EB5)

First Resources - Slow Start Indeed To The Year

FIRST RESOURCES LIMITED (SGX:EB5)'s 1Q19 results fell short of our/market expectations mainly on low prices and output. With 2-3 months of inventory at hand, earnings could still play catch up especially in 2H19 when output and prices recover.
Nonetheless, we lowered our EPS forecasts on weaker FFB growth guidance. With that, we trimmed our Target Price to SGD1.93 (previously SGD2.03) on unchanged 17x PER peg, its 5-year mean.

Still, we reiterate our BUY call on First Resources given its medium-term growth prospect, and cost efficiency.

First Resources reported a 1Q19 core PATMI of USD12m (-56% y-o-y, -38% q-o-q) which met just 9%/8% of our/market FY19 estimates.
The earnings shortfall was due to softer upstream earnings on weak 1Q19 CPO ASP achieved of USD460/t (-22% y-o-y, -7% q-o-q) and low FFB nucleus output (-7% y-o-y, -16% q-o-q), and to a lesser extent, delay in invoicing on freight charges to Pertamina for the supply of biodiesel. This was somewhat buffered by net inventory drawdown of ~17,000t during the quarter (2018’s net inventory build-up: ~69,000t).
Downstream’s EBITDA margin broke even in 1Q19 compared to 1Q18’s LBITDA margin of –USD4/t and 4Q18’s EBITDA margin of USD26/t.

Operationally, First Resources’ 1Q19 FFB output met just 20% of our earlier full-year forecast, but within historical trends as Q1 output is seasonally the weakest. While 2018’s 1H:2H output ratio was 46:54, First Resources guides for 2019’s ratio at 40:60 (vs 2011-18 historical trends of 43:57).
Still, First Resources lowered its 2019’s FFB growth guidance to ~5%, at the lower end of its previous guidance of 5-10% (FY18A: +14% y-o-y).

We expect better results in 2H19. But following fresh guidance, we shaved our 2019-10 FFB output estimates by 3%/4%, which implies +6% y-o-y (previously +9%) FFB growth for 2019.
Our FY19-20E EPS are cut by 6%/8%.
Our FY19 net CPO ASP assumption is presently at USD553/t.

Ong Chee Ting CA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-05-15

SGX Stock Analyst Report BUY MAINTAIN BUY 1.93 DOWN 2.030