First Resources - UOB Kay Hian 2019-05-16: 1Q19 Results Within Expectation; Lower FFB Production Growth Guidance


First Resources - 1Q19: Results Within Expectation; Lower FFB Production Growth Guidance

  • First Resources registered a core net profit of US$11.7m, excluding forex gain of US$0.6m. Results are within our expectation along with the low ASP despite high sale volumes. The lower downstream margin was mainly due to the delay in invoice recognition.
  • We have adjusted down our FFB production to 5% due to the unusual weather pattern and lower FFB yield.
  • Maintain HOLD with a lower target price of S$1.70. Entry price: S$1.50.


Within expectations.

  • FIRST RESOURCES LIMITED (SGX:EB5) registered net profit of US$12.3m. Excluding the forex gains, core net profit stands at US$11.7m (-41% q-o-q, -53.6% y-o-y). Results are within our expectation of US$10m-12m, where earnings were dragged down by lower CPO prices despite higher sales volume.
  • Downstream EBITDA was affected by the withdrawal of exports levy in Indonesia and delay in invoicing for biodiesel delivered locally.

Better qoq and yoy earnings.

  • Despite palm prices being on a downtrend, First Resources still reported a revenue growth of 10.4% y-o-y, boosted by higher sales volumes which was partially offset by the lower ASPs which contributed to the decline in margins. The increment in sale volumes was contributed by a net inventory drawdown of 17,000 tonnes.

Lower qoq and yoy net profit.

  • The low net profit performance was mainly attributed to higher cost of sales due to higher sales volume and increase in purchases of palm oil products from third parties where the margins were also impacted. The increase in CPO purchases from external parties helped to mitigate the effects of lower production volumes, where First Resources’s FFB production was at 724,306 tonnes, down by 16.6% q-o-q and 8.8% y-o-y.

Low downstream margins.

  • The low downstream margin was mainly due to the slower reimbursement of freight cost for biodiesel delivered in 1Q19, while the suspension on exports levy had also eroded the opportunity from arbitraging with a small difference between crude (US$50/tonne) and refined products (US$20-US$30/tonne). This was due mainly to the delay in issuance of regulatory guidance for the freight charges. This is expected to be reimbursed in 2Q19.


Revised production growth guidance to 5% y-o-y for 2019.

  • Management has revised down production growth guidance to 5% y-o-y from 5-10% previously. The yields from the older trees in the Riau region were lower than expected.
  • We have adjusted down our FFB production growth from 11% to 5% accordingly. Oil palm trees in high productive areas in Riau (about 69% of total estates) are also reaching an older age and FFB yields will not be able to match that produced during the prime age period (10-15 years).
  • Estates in Riau are undergoing a replanting programme now. Also, production from plasma dropped more severely than production from nucleus areas.

Biodiesel plant should be running at full utilisation.

  • The biodiesel allocation for 2019 is approximately 79.5% higher y-o-y at 171,854 kilolitres (or 141,186 tonnes). Higher local allocations and good external demand should lead to full utilisation at First Resources’ biodiesel plant with the current PO-GO spread at US$177/tonne. On top of that, we believe First Resources’ biodiesel sales to the domestic market also benefitted from demand from non-mandated segments, given diesel prices (Rp9,800/litre) in Indonesia are higher than that of biodiesel (Rp7,348/litre).


Adjusted net profit forecasts.

  • We have adjusted down our EPS forecasts by 6-10% to 9.2 US cents, 10.8 US cents and 11.6 US cents for 2019, 2020 and 2021 respectively, factoring in the lower FFB production.


Maintain HOLD with a lower target price of S$1.70

  • Our target price of S$1.70 is based on 13x 2019F PE, or -1SD of its 5-year mean PE. Entry price is S$1.50.
  • If we peg the valuation to a mean PE of 15x, First Resources’ fair value would be at S$2.00.


CPO prices are a key driver of earnings growth and share price.

Leow Huay Chuen UOB Kay Hian Research | Singapore Research Team UOB Kay Hian | 2019-05-16
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.700 DOWN 1.85