First Resources - Maybank Kim Eng 2019-08-15: Expect A Much Better 2H19


First Resources - Expect A Much Better 2H19

2Q19 EPS affected by low prices and output

  • FIRST RESOURCES LIMITED (SGX:EB5)'s 2Q19 core PATMI fell short on low prices and output. We cut our FY19-21E EPS forecasts by 6-8%. But we look forward to a better 2H19 on seasonally higher output and stronger prices.
  • Following our EPS revisions, our new Target Price is SGD1.80 (previously SGD1.93) on unchanged 17x FY20 PER, its 5-year mean.
  • BUY; we continue to like First Resources for its medium-term growth prospect and cost efficiency, being one of the lowest cost producers in the region.
  • First Resources declared an interim DPS of 0.625 cents (payable: 12 Sept).

Buffered by downstream contribution

  • First Resources's 2Q19 core PATMI of USD17m (-53% y-o-y, +38% q-o-q) brings 1H19 core PATMI to USD29m (-54% y-o-y), which met just 28% of our/consensus full-year forecasts.
  • 2Q19 earnings were largely affected by low CPO ASP of USD492/t (-13% y-o-y, +7% q-o-q), low PK ASP of USD287/t (-21% y-o-y, -13% q-o-q), higher cost and weak FFB nucleus output (654,986t; -7% y-o-y, flat q-o-q). This was partly mitigated by net inventory drawdown of 31,000 MT (following net inventory build-up of ~69,000 MT in 2018).
  • Its downstream division recorded lower y-o-y EBITDA margin of USD11/t (2Q18: USD24/t, 1Q19: broke even) which we believe was in part due to the suspension of Indonesia export taxes since Dec 2018 which affected the refining margins. This was offset by better biodiesel margins.

Still guiding for stronger output in 4Q19

  • FFB nucleus output entered into biological tree rest mode in 2Q19 posting y-o-y decline, bringing 1H19 FFB nucleus output to 1.31m MT (-7% y-o-y). 1H19 output met just 40% of our full-year forecast.
  • While it is also below the historical 1H:2H 43:57 output trend, First Resources is guiding for a stronger output in 2H19 especially in 4Q19. Nonetheless, First Resources has lowered its 2019’s nucleus FFB growth guidance of 0-5% (previously: around 5%).

FY19-21E EPS cut by 6-8%

  • We cut our FY19-21E EPS by 8%/6%/6% as we lower our output assumptions by 2-3%.
  • Following the revision, we now expect FFB output to grow by 3% in FY19 (previously 6%).

Ong Chee Ting CA Maybank Kim Eng Research | 2019-08-15
SGX Stock Analyst Report BUY MAINTAIN BUY 1.80 DOWN 1.930