FIRST RESOURCES LIMITED (SGX:EB5)
First Resources - On A Positive Footing
- Aiming for 72% y-o-y earnings recovery in 2020.
- FY20/21F earnings raised by 8%/4% on higher CPO price.
- Top pick in our plantation universe.
- Maintain BUY with higher Target Price of S$2.10.
Earnings to rebound in 2020.
- We expect FIRST RESOURCES (SGX:EB5)'s earnings to rebound by 72% y-o-y to US$148m in 2020, driven by higher CPO price of US$596 per MT (+19% y-o-y).
- CPO prices are forecast to head higher led by tightening supply and demand dynamics. First Resources is set to capitalise on the CPO price recovery supported by decent yields from its palm oil estates and higher fruit volume.
- First Resources remains our pick in the plantation sector given its strong asset base to capitalise on the edible oil market recovery in 2020.
Where we differ: We like FR’s organic growth prospects.
- First Resources’ aggressive planting in East and West Kalimantan between FY12 and FY14 should contribute to the group’s strong CPO volume and yield. Higher CPO yields on maturing trees would improve First Resources’ ROIC and profitability metrics on the back of an expanded operating scale, which would result in stronger earnings growth momentum ahead.
Potential catalyst:
- Earnings recovery in 4Q19 and 2020. Higher palm oil price trend since October to date is the key catalyst for 4Q19 earnings performance besides potential volume expansion.
Valuation:
- We employed DCF methodology (FY20F as base year; WACC 11.8%; TG 3%) to arrive at a fair value of S$2.1/share. Maintain BUY.
- See First Resources Share Price; First Resources Target Price; First Resources Analyst Reports.
Key Risks to Our View:
- CPO output may affect CPO price trend. Stronger-than-expected yields in Indonesia and Malaysia may pressurise CPO prices next year.
William Simadiputra
DBS Group Research
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Rui Wen LIM
DBS Research
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https://www.dbsvickers.com/
2019-12-09
SGX Stock
Analyst Report
2.10
UP
1.950
