First Resources - RHB Invest 2020-08-17: Decent CPO Prices Expected For The Rest Of 2020

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FIRST RESOURCES LIMITED (SGX:EB5)

First Resources - Decent CPO Prices Expected For The Rest Of 2020

• First Resources (SGX:EB5)’s 1H20 results were slightly below our expectations and further beneath Street’s. While production is set to be muted vis-à-vis FY19, First Resources should still be able to enjoy the higher CPO prices. It is trading at a relatively fair value now, ie its historical 14x FY21F mean.
• Keep NEUTRAL and SGD1.45 Target Price, 2% upside and c.2% yield.

First Resources' 1H20 earnings marginally below expectations

• First Resources' 1H20 earnings marginally below expectations, comprising 43% of our FY20 forecast but just 35% of Street’s. This was on weaker refined palm products’ sales volumes (-16% y-o-y) and partially offset by stronger ASP (+13% y-o-y). First Resources also had 19,000 tonnes of inventory build-up in 1H20 (1H19: 48,000 tonnes drawdown).
• A 1 cent DPS for 1H20 was declared.
• Briefing highlights:
  1. 1H20 FFB production fell 1.1% y-o-y, below First Resources’ original guidance (lower end of 0-5%) and our projected 0.4% growth for FY20. This was attributed to the lingering dry spell from 3Q19 and 2Q20 wet conditions that slightly impacted harvesting activities. First Resources now expects FY20 FFB growth to be flat or slightly negative vis-à-vis FY19. We maintain our FY20 growth assumption of 0.4% and 6-7% for FY21-22;
  2. First Resources is doing some forward sales now with the aim of protecting profit. However, management does not see a large downside risk to prices from here, given the output weakness in Indonesia;
  3. First Resources continues to guide for FY20 cash costs of USD210.00- 230.00/tonne, with fertiliser application on track (1H20: 60-70% applied);
  4. 1H20 refineries utilisation rate stands at close to 100%, with improved margins of 3.6% (1H19: 1.1%). However, 2H20 margins may see some pressure due to higher feedstock prices currently;
  5. Demand pickup expected to continue in 2H20. First Resources does not expect a significant slowdown in demand despite improving stock levels in key export markets (ie China and India), as current inventory levels are still not considered excessive (at < 1 month). In addition, demand is expected to be supplemented by the resumption of operations in the HoReCa sector and approaching festive seasons in key markets;
  6. First Resources expects further measures to support the B30 mandate, potentially through further hikes in export duties to USD60.00/tonne or more. However, there has been talk of an increase in biodiesel pricing to CPO plus USD85.00/tonne from USD80.00/tonne. If this happens, it should help boost margins, which has seen pressure on rising methanol and lower glycerine prices.

Still NEUTRAL.

• Post adjustments for lower downstream contributions and higher interest expenses, we bring down FY20-22 forecasts by 2-10%. The unchanged target price for First Resources is based on 14x 2021F P/E, in line the historical average.
• See First Resources Share Price; First Resources Target Price; First Resources Analyst Reports; First Resources Dividend History; First Resources Announcements; First Resources Latest News.
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Singapore Research RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-08-17

SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 1.450 SAME 1.450