First Resources - CGS-CIMB Research 2021-03-01: The Good & Bad From Results & Briefing


First Resources - The Good & Bad From Results & Briefing

  • First Resources’s final core net profit was in line with ours but below consensus forecasts.
  • First Resources targets flat to +5% FFB output for 2021F and raises its forward dividend payout policy to 50% from 30% currently (FY21F dividend yield of 3.6%).
  • However, it has also locked in ASP for a meaningful portion of its 1H21 crops, which means it may not fully enjoy current high prices.

First Resources's final results in line with ours but below consensus expectations

  • First Resources (SGX:EB5) posted a 29% jump in FY20 core net profit to US$114m, thanks to higher ASP for CPO (+16% y-o-y to US$541 per tonne) which more than offset lower FFB output from nucleus estates (-4% y-o-y).
  • In 2H20, First Resources’s headline net profit fell 6% y-o-y to US$56m (vs. US$60m in 2H19) due mainly to forex losses of US$5.2m (vs. 2H19: US$0.04m) and losses on derivatives of US$10.5m (vs. 2H19: US$0.01m). Excluding these, core net profit grew 21% y-o-y in 2H20.
  • First Resources's FY20 earnings would have been higher if not for a net inventory build-up of 44,000 tonnes in FY20 (vs. drawdown of 53,000 tonnes in FY19) and deferred tax expenses of US$6m.
  • Final core net profit (excluding forex and derivatives losses) made up 98% of our full-year forecast of US$116m but only 85% of consensus’s US$134m. The final dividend of S$0.02 was broadly in line with expectations.

ASP for CPO lagged market prices, FFB output fell 4% y-o-y in FY20

  • FFB output from its nucleus estates fell by 4% in FY20, which was in line with the group’s guidance for flat or slightly negative output. The lower output was due to dry weather experienced at its estates in 3Q19 and 1Q20. Average CPO price achieved in 2H20 and FY20 rose by 15% y-o-y and 16% y-o-y, but trailed the 21% y-o-y and 26% y-o-y registered by international average CPO price for the period due to forward sales policy and higher export tax and levy in 4Q20.
  • First Resources’s downstream business posted a significant y-o-y jump in earnings to US$22m in 2H20 from US$10m in 1H20 but lower than 2H19’s US$26m due to changes in export levy structure.

What to watch out for in 2021

  • The sharp increase in Indonesia’s monthly export levy and tax rate for CPO from US$88 before the change in export levy structure on 10 Dec to US$348 per tonne in Feb 21 could be a short-term negative for First Resources as the group indicates that it will not be able to hedge export tax and levy costs as it forward sold its palm products. However, it could recover these when prices are on the downtrend.
  • First Resources’s expectation of flat to higher output, potential draw down of inventory, reversal of derivatives losses and absence of deferred tax expenses will drive earnings in 2021.
  • We raise our First Resources's FY21-22F EPS forecasts by 4%- 11% to reflect our recently revised higher CPO price forecasts. This raises our target price to S$1.69, still based on an average P/E of 16x (historical 3-year average P/E).
  • See First Resources Share Price; First Resources Target Price; First Resources Analyst Reports; First Resources Dividend History; First Resources Announcements; First Resources Latest News.
  • First Resources remains one of our top long-term CPO picks due to its younger estate profile, low costs of production (US$221 per tonne for FY20) and improving earnings prospects.
  • Key catalysts are higher CPO price and yields.
  • Key risks are lower CPO prices and yields as well as rising costs.

Ivy NG Lee Fang CFA CGS-CIMB Research | Nagulan RAVI CGS-CIMB Research | 2021-03-01
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