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

FIRST RESOURCES LIMITED (SGX:EB5)

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.

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%.

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.

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.

We fine-tune our EPS forecasts and expect stronger EPS in 2020 mainly driven by higher CPO price. Current CPO price in Indonesia of US$630/tonne is higher than 2019’s average of US$521/tonne.
We cut our Target Price to S$1.91, still based on average P/E of 16x (historical 3-year average P/E).
See First Resources Share Price; First Resources Target Price; First Resources Analyst Reports; First Resources Dividend History; First Resources Announcements; First Resources Latest News.
First Resources is one of our top CPO picks as it offers high earnings leverage to rising CPO prices and attractive valuations.
Key catalysts/downside risks are higher/lower CPO price and higher/lower FFB yields.

Ivy NG Lee Fang CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-02-26

SGX Stock Analyst Report ADD MAINTAIN ADD 1.91 DOWN 1.94