First Resources - Maybank Kim Eng 2020-02-27: 2020 A Year Of Earnings Recovery

FIRST RESOURCES LIMITED (SGX:EB5) | SGinvestors.io FIRST RESOURCES LIMITED (SGX:EB5)

First Resources - 2020 A Year Of Earnings Recovery


Upgrade to BUY

  • First Resources (SGX:EB5)'s 4Q19’s core PATMI missed our/ consensus estimates mainly on lower-than-expected CPO ASP achieved. Looking forward, FY20E’s EPS growth of +34% will be mainly driven by
    1. our unchanged net CPO ASP of USD529/t (+13% y-o-y), and
    2. +5% y-o-y FFB growth.
  • Following our EPS revisions, our new Target Price is SGD1.85 (previously SGD1.86) on unchanged 18x FY20 PER, its 5-year mean.
  • We upgrade First Resources to BUY (from HOLD) given our expected TSR of 19%.



4Q19: Has yet to fully benefit from higher CPO ASP

  • First Resources's 4Q19 core PATMI of USD30m (+49% y-o-y, +7% q-o-q) brings 12M19 core PATMI to USD87m (-29% y-o-y), which met 93%/88% of our/consensus forecasts.
  • 4Q19 earnings were largely affected by lower-than-expected CPO ASP of USD469/t (-5% y-o-y, -3% q-o-q) and low PK ASP of USD258/t (-24% y-o-y, -2% q-o-q), despite a net inventory drawdown of 37,000t.
  • 4Q19’s CPO ASP realised was 21% below Malaysia’s CPO spot price. First Resources explained that its upstream output is sold internally to its downstream division and hence there is ~1-month lag effect in terms of sales recognition considering the logistics involved.
  • The positive surprise in 4Q19 came from its downstream division which recorded higher y-o-y EBITDA margin of USD61/t (4Q18: USD26/t, 3Q19: USD21/t) on high utilisation rates.


FY20: up to 5% FFB output growth guidance

  • FY19’s FFB nucleus output of 3.0mt (-2% y-o-y) met 98% of our forecast. For FY20E, First Resources is conservatively guiding for flattish-to-5% y-o-y FFB growth. Hence we cut our FY20-21E FFB output by 6%/8%, which now implies a 5%/7% y-o-y growth.
  • For downstream, we expect another decent year for FY20E but 4Q19’s strong margin will not be repeated. By our estimate, its FY19 all-in cost of production is at ~USD332/t (+10% y-o-y).


FY20-21E EPS cut by 3%/9%






Ong Chee Ting CA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-02-27
SGX Stock Analyst Report BUY UPGRADE HOLD 1.85 DOWN 1.860



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