First Resources - Maybank Kim Eng 2021-03-01: FY21 Remains Promising Despite Uncertain Forward Sales Impact

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FIRST RESOURCES LIMITED (SGX:EB5)

First Resources - FY21 Remains Promising Despite Uncertain Forward Sales Impact

New dividend payout ratio of up to 50% from FY21E

• First Resources (SGX:EB5)'s 2H20 core PATMI missed our / consensus estimates on several factors. But the net inventory build-up at end-2H20 and Fair Value loss on derivative financial instruments (US$11m) will likely benefit FY21E’s bottom line.
• Recent guidance on forward sales created some uncertainty on its 1H21 downstream outlook. Even assuming zero downstream EBITDA contribution for FY21E, we still forecast a 34% core earnings growth for First Resources in FY21E on higher price and output.
• Following our earnings forecast revisions, our new target price for First Resources is S$1.88 (-4%) on unchanged 17x 2021 PER peg, its 5-year mean. First Resources remains a BUY.
• A final dividend of S$0.02 per share was proposed, and a new dividend payout ratio of up to 50% was announced.

Several factors led to weak 2H20 earnings

• First Resources's 2H20 core PATMI of US$53m (-7% y-o-y, +23% h-o-h), brings 12M20 core PATMI to US$97m (+11% y-o-y) which met just 75%/72% of our/street full-year estimates. 2H20 results were below expectations due to
  1. lower-than-expected CPO ASP achieved due to forward sales done earlier and also the lagged nature of sales recognition of an integrated player,
  2. net inventory build-up (end-2H20: +25,000t) as logistics were affected by heavy rainfall,
  3. fair value loss (US$11m),
  4. FX losses (US$5m), and
  5. high effective tax rate (34%) due to withholding tax and deferred tax adjustments on Indonesia’s lowered corporate tax rates.

All-in cost to customer still low at US$300/t, we estimate.

• First Resources's FY20 plantation EBITDA rose 33% y-o-y to MYR236m as higher CPO ASP (+16% y-o-y) offset weaker output (-4% y-o-y). We estimate its all-in operating cost to customers was at US$300/t (+4.5% y-o-y). Meanwhile, downstream EBITDA rose 9% y-o-y to US$32m on higher margin of US$29/t.

Expect 34% EPS growth despite downstream hedges

• First Resources guides that it has forward sold a meaningful percentage of its 1H21 output without providing specifics. What we know is the export taxes payable to the government cannot be hedged and hence First Resources would have the bear the difference between the export taxes in the month of delivery compared to when it was locked in.
• Given much uncertain forward sales impact, we have assumed zero FY21E downstream EBITDA for First Resources. Still we forecast 34% earnings growth for FY21E due to its upstream growth.
• See First Resources Share Price; First Resources Target Price; First Resources Analyst Reports; First Resources Dividend History; First Resources Announcements; First Resources Latest News.

Ong Chee Ting CA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-03-01

SGX Stock Analyst Report BUY MAINTAIN BUY 1.88 DOWN 1.960