First Resources - RHB Invest 2020-07-27: Good Company, Fair Valuation

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

First Resources - Good Company, Fair Valuation

  • With markets in a liquidity-driven rally, we believe cyclical sectors like plantations could be the next play, providing investors with a relatively safe haven, in terms of earnings. Nevertheless, we caution of a possible pullback in CPO prices in 4Q20 and continue to advocate buying stocks which are still trading at decent valuations.
  • We believe First Resources (SGX:EB5) is already trading at a relatively fair value, at its historical mean of 14x.
  • Maintain NEUTRAL, with new SGD1.45 Target Price from SGD1.35, 4% upside.



CPO prices have rallied of late

  • CPO prices have rallied of late to current levels of MYR2,739/tonne. While we do not see any significant catalyst that could have caused this rerating other than the recently released Malaysian plantation statistics – which were a positive surprise – we believe much of the rally could have been caused by the current liquidity in the market. This liquidity has cut across all asset classes – not just for equities, but also for fixed income and commodities.
  • That said, we believe CPO prices are likely to hold relatively steady in 3Q20, given that CPO production only started ramping up in June, while pent-up demand is likely to continue until at least August or September, in light of the Deepavali festival in November.


4Q20F should see a pullback of prices

  • Post-3Q20, we continue to hold our view that 4Q20F should see a pullback of prices on the back of the impact of the seasonal peak production which will end in 4Q20 and lower post-festive demand.
  • On the whole, however, CPO prices in 2020 are expected to be 13% higher than that of 2019, while production for most planters, particularly those in Indonesia, will be higher. This means earnings will be stronger y-o-y in 2020, as well as in 2021, given our assumption of a higher MYR2,500/tonne CPO price. This security of earnings, we believe, will give investors a reason to invest in the sector – provided that valuations make sense, of course.


Maintain NEUTRAL






Singapore Research RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-07-27
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 1.45 UP 1.350



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