First Resources - UOB Kay Hian 2020-08-17: 1H20 Results Within Expectations

FIRST RESOURCES LIMITED (SGX:EB5)

First Resources - 1H20 Results Within Expectations

First Resources reported 1H20 net profit of US$105m in 1H20. The y-o-y improvement in results was mainly due to higher ASP and better downstream margin. FFB production saw marginal growth, supported by higher plasma production.
We expect a better 2H20 on the back of higher ASP and a slightly improvement in production. Having said that, we expect downstream margin to narrow in 2H20. Management has also revised its FFB production guidance to 0% y-o-y for 2020.

First Resources (SGX:EB5) reported core net profit of US$42.8m for 1H20. The improvement was driven by better contributions from both upstream and downstream. We expect much better earnings in 2H20, supported by higher ASP coupled with slightly better production h-o-h.

Upstream EBITDA grew 55.7% y-o-y to US$104.5m in 1H20. This was mainly due to higher ASP, which increased 16% y-o-y, together with higher CPO sales volume.

Downstream operation earnings increased by > 100% y-o-y despite lower sales volume in 1H20 as margins expanded on lower raw materials cost. In addition, refinery margin was also higher as prices of refined products did not fall as much as crude oil prices did.

FFB production for 1H20 grew marginally by only 0.3% y-o-y, but CPO production was up by 6.6% y-o-y as a result of better OER of 23.4% vs 23.1% in 1H19. This is better than most of its peers, who mostly reported declines in production and lower OER for 1H20.

First Resources has revised its FFB production growth guidance from 0-5% y-o-y to 0% y-o-y for 2020. Management also mentioned that there could even be negative growth for 2020. This revision is to factor in the more severe-than-expected impact of the 2019 dry weather on oil palm trees.
Having said that, we have pencilled in our FFB production growth for FR at -1% y-o-y mainly due to the unfavourable weather.

Sales volume for its refined products would be higher in 2H20 as China and India will replenish their stocks after the lockdown due to COVID-19. Downstream operating margin is expected to be lower in 2H20 with higher feedstock prices.
Being one of the major biodiesel players in Indonesia, management also shared that the delivery of contracted amount by Pertamina is on track and at high realisation rate. Management is optimistic that Indonesia will be able to carry out the B30 mandate as planned.

First Resources declares 1 S cent/share for 1H20 which translates into payout of 27%, with payable date on 10 Sep 20. We are expecting a total dividend of 3.7 S cents/share based on payout ratio of 30%. This translates into dividend yield of 6.7% for 2020F.

We maintain our net profit forecasts for 2020-22 at US$144m, US$145m and US$151m respectively.
Maintain BUY on First Resources with target price of S$1.65, pegged at 12x 2021F PE, which is 1SD below the stock’s 5-year average mean PE of 15x.
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First Resources remains one of our top picks for the plantation sector. We like First Resources for its good track record of delivering better-than-peers’ performance, and First Resources is also highly leveraged to CPO prices.
First Resources share price catalysts:
- Stronger-than-expected CPO price recovery. First Resources’ earnings are still largely dependent on upstream contribution, and higher CPO prices are positive to its earnings.
- Higher-than-expected FFB and CPO production.

Leow Huay Chuen UOB Kay Hian Research | Jacquelyn Yow UOB Kay Hian | https://research.uobkayhian.com/ 2020-08-17

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