First Resources - Maybank Kim Eng 2019-11-12: Stronger 4Q19 Prospects Priced-in For Now

FIRST RESOURCES LIMITED (SGX:EB5)

First Resources - Stronger 4Q19 Prospects Priced-in For Now

FIRST RESOURCES LIMITED (SGX:EB5)'s 3Q19 profits would have been better if not for a net inventory build-up.
Looking forward, 4Q19 prospects look better as CPO price has finally risen to reflect industry-wide supply concerns. Following our EPS revisions, our new Target Price is SGD1.86 (previously SGD1.80) on updated 18x FY20 PER (previously 17x FY20 PER), its 5-year mean. See First Resources Share Price; First Resources Target Price.
Given limited upside, we downgrade First Resources to HOLD (from BUY).

We prefer BUMITAMA AGRI (SGX:P8Z) as its share price has lagged recent CPO price rally. (see Bumitama Agri Share Price; Bumitama Agri Target Price)

First Resources' 3Q19 core PATMI of USD28m (-29% y-o-y, +64% q-o-q) brings 9M19 core PATMI to USD57m (-44% y-o-y), which met 59% of our/consensus full-year forecasts – within expectations. 3Q19 earnings were largely affected by lower CPO ASP of USD454/t (-14% y-o-y, -8% q-o-q), low PK ASP of USD264/t (-25% y-o-y, -8% q-o-q) and a net inventory build-up of +32,000t. 3Q19 FFB nucleus output was marginally higher y-o-y at 0.89mt (+2% y-o-y, +36% q-o-q). See First Resources Announcements.
Meanwhile, its downstream division recorded higher y-o-y EBITDA margin of USD21/t (3Q18: USD16/t, 2Q19: USD11/t) on higher utilisation rates.

After a lackluster 1H19 output growth (-7% y-o-y), 3Q output caught up as it met 28% of our full-year forecasts (1H19: 42%). This brings 9M19 FFB nucleus output to 2.20mt (-4% y-o-y) which met 70% of our earlier full-year forecast; within historical trends.
However, First Resources is now guiding for a flattish 2019 nucleus FFB growth guidance (previously 0-5%). Hence we trimmed our 2019 FFB output by 2% to reflect the new guidance. We have also correspondingly trimmed our 2020-21 FFB output by 2% each.

CPO prices have risen sharply thus far in 4Q19. As at 10 Nov, CPO spot price was USD587/t while 4QTD CPO ASP was USD525/t (3Q19: USD486/t, 4Q18: USD460/t). The higher CPO price brings hope of much stronger earnings prospects in 4Q19.
Following our output adjustments and reducing our interest costs assumptions, we trimmed our FY19-21 EPS by 4%/3%/2% respectively.

Ong Chee Ting CA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-11-12

SGX Stock Analyst Report HOLD DOWNGRADE BUY 1.860 UP 1.800