First Resources - CGS-CIMB Research 2020-02-26: Stronger Downstream Earnings Boost 4Q19


First Resources - Stronger Downstream Earnings Boost 4Q19

  • First Resources (SGX:EB5)’s FY19 core net profit was 7% above our full-year forecast but 4% short of consensus.
  • FY19 core net profit fell 24% y-o-y due to lower CPO price. However, we project earnings to recover in FY20 due to better ASP and production.
  • We trim our Target Price to S$1.91. First Resources remains one of our top regional CPO picks.

Final results above ours but below consensus

  • First Resources (SGX:EB5)’s 4Q19 core net profit rose 36% y-o-y thanks to higher CPO sales volume and refining profit. However, this was insufficient to offset weaker profit in 9M19. As such, FY19 core net profit declined 26% y-o-y to US$87m. FY19 core net profit was 7% above ours but 4% below consensus.
  • The better than expected 4Q earnings was due to higher CPO sales volumes as the group drew down 37k tonnes of inventory.
  • First Resources declared a final dividend of S$0.01725, bringing full-year dividend to S$0.0235, slightly better than our forecast of S$0.021 per share. First Resources’s dividend payout ratio is 30%.

Earnings may have bottomed in 2019, in line with CPO price

  • First Resources’s FY19 core net profit (excluding forex gains, gains from changes in biological assets, losses from changes in fair value of unquoted investment) fell 24% y-o-y to US$87m, mainly due to weaker plantation EBITDA. Plantation EBITDA fell 29% y-o-y to US$177m as lower ASP for CPO (-13% y-o-y to US$468 per tonne) as well as PK (-29% y-o-y to US$281/tonne) trumped higher CPO sales volumes (+2% y-o-y).
  • FFB output from nucleus estates fell 2% y-o-y which is broadly in line with its guidance of slightly negative to flat FFB output. Its refinery and processing segment posted a 70% jump in EBITDA due to better processing margin.
  • On a positive note, the group posted 13% q-o-q improvement in its 4Q19 core net profit thanks to higher processing earnings.

FFB output guidance of flat to +5% for 2020

  • During its 4Q results teleconference, First Resources provided FFB output growth guidance of 0% to 5% for 2020 (vs. -2% for 2019) and cost of production of US$210-230 per tonne for 2020 (vs. US$230/tonne for 2019). The group anticipates 2Q to be the lowest production quarter and 4Q to be the highest production quarter.
  • First Resources is likely to apply more fertilisers in 2020 as some of the intended application for 2019 has been delayed. The group also revealed that it plans to build a new integrated processing complex in East Kalimantan which will cost US$110m and be ready in 2022.

Maintain Add with a lower Target Price of S$1.91

Ivy NG Lee Fang CFA CGS-CIMB Research | 2020-02-26
SGX Stock Analyst Report ADD MAINTAIN ADD 1.91 DOWN 1.94