FIRST RESOURCES LIMITED (SGX:EB5)
First Resources - Tailwinds From Higher Palm Oil Prices
- First Resources' 1H20 earnings climbed 48% to US$43.2m, in line.
- Expecting 2H20 earnings to get a lift from improving palm oil price trend.
- Trading below its 5-year average PE even though earnings outperformed Indonesia-listed peers.
First Resources' 1H20 Earnings performed better than its Indonesia-listed peers.
- First Resources (SGX:EB5) posted 2Q20 NPATMI of US$21m (+23.5% y-o-y -5.4% q-o-q), and 1H20 earnings of US$43m (+47.8% y-o-y), in line with our estimate. The performance was largely driven by higher palm oil prices y-o-y, while 1H20 refinery and sales volume of 475.6k MT (-15.6% y-o-y) was affected by 19k MT of inventory buildup in end of June 2020.
- First Resources’ earnings trend has outperformed its Indonesia-listed peers especially on q-o-q basis as we didn’t see a steep q-o-q drop as experienced by both AALI and LSIP. The 2Q20 performance was attributed to First Resources’ steady FFB production both from nucleus and external purchases, and the earnings trend shows the importance over CPO yield performance which supports profitability trend amid q-o-q CPO price trend.
- Total harvested FFB reached 749k MT (+2.5% y-o-y, +5.6% q-o-q) in 2Q20 , driven by 5.9% q-o-q and 3.3% q-o-q improvement from both own and smallholders fruits production of 666k MT (+1.7% y-o-y) and 83.7k MT (+9.4% y-o-y) respectively. This resulted in 2Q20 FFB yield improvement of 3.7 MT/ha.
- With relatively stable CPO and PK extraction rates of 23.1% and 5.1%, CPO and PK production reached 191.2k MT (+9.3% y-o-y, +6.2% q-o-q) and 42k MT (+3.6% y-o-y, +3.9% q-o-q) respectively.
- Meanwhile 1H20’s CPO ASP jumped from a low base last year to US$550 per MT (+16% y-o-y) with PK ASP climbed to US$308 per MT (+7% y-o-y). This trend is largely in line with the palm oil benchmark price trend where 2Q20 prices were affected by the India lockdown measures and crude oil price downtrend, before a price rebound in June 2020.
Earnings forecast: Tailwinds from palm oil price in 3Q20
- Looking forward, the improvement in palm oil prices to above US$600 per MT trend from June should support q-o-q earnings improvement in 3Q20. Coupled with First Resources’ steady CPO yield performance in 2H20, we believe First Resources should be able to capitalise on any stronger than expected CPO price momentum and continue to generate better than peers’ earnings trend.
- We are keeping our forecasts for now, since we believe 1H20 performance was largely anticipated due to low prices trend in 2Q20, and First Resources’ still can post a relatively stronger than peers’ earnings trend as we mentioned before.
First Resources - Rating and Target price
- We maintain our BUY rating with unchanged DCF based Target Price of S$1.7 per share. Our Target Price implies 17x FY20F PE, which is close to its 5-year average PE multiple of 17.3x. First Resources is one of our top palm oil stock picks, for its strong productivity and profitability performance.
- First Resources' share price has not moved post the COVID-19 sell off; this probably reflects investors skepticism over palm oil price trend in 2H20 and 2021, mainly on lingering COVID-19 impact and low oil prices. However, we expect palm oil prices will be supported by the tight output trend until the end of the year. Indonesia B30 is moving in the right direction as government has reintroduced US$55 per MT CPO export levies. The biodiesel pricing formula was changed to prevent excessive use of the CPO fund.
- See First Resources Share Price; First Resources Target Price; First Resources Analyst Reports; First Resources Dividend History; First Resources Announcements; First Resources Latest News.
- We maintain our FY20 CPO price forecast at US$596 per MT (RM 2,450 per MT) in 2020, as 1H20 price trend was in line. We expect to see an improvement in 2021 to US$617 per MT (RM2,540 per MT). Please click here for report: Regional Plantations - A Good Start To 2H20.
William Simadiputra
DBS Group Research
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Singapore Research Team
DBS Research
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https://www.dbsvickers.com/
2020-08-17
SGX Stock
Analyst Report
1.700
SAME
1.700
