First Resources - Maybank Kim Eng 2021-03-09: NDR Takeaways

FIRST RESOURCES LIMITED (SGX:EB5) | SGinvestors.io FIRST RESOURCES LIMITED (SGX:EB5)

First Resources - NDR Takeaways


Attractive dividend yields going forward

  • First Resources (SGX:EB5) is confident of delivering y-o-y growth in terms of EBITDA and net income in FY21E on higher prices and output, and non-recurring deferred taxes. And this is also despite some uncertainty on its 1H21 downstream outlook on forward sales locked in earlier.
  • We maintain our 34% core EPS growth forecast in FY21E. The new dividend policy to pay up to 50% dividend payout ratio is helping First Resources transition to a dividend yield stock.
  • Maintain BUY and target price of S$1.88 on unchanged 17x 2021 PER peg, First Resources's 5-yr mean.



Key takeaways from First Resources's NDR

  • We hosted First Resources on a NDR last week. Key takeaways:
    1. First Resources is unable to share more details on its forward sales beyond a meaningful percentage of 1H21 output was sold forward but the export taxes cannot be fully hedged. Forward sales are in processed palm oil form. There was also some forward sales done for 2H21, and First Resources is not adverse to lock in more forward sales at the right price as it takes the view that CPO price will moderate when supply recovers;
    2. FY21’s 1H:2H production ratio is likely at 45%:55%;
    3. While MKE has conservatively forecasted zero EBITDA from downstream in FY21E, First Resources is confident its downstream contribution will still be positive;
    4. US$6m in deferred tax adjustment that was expensed in FY20 (due to Indonesia’s lowered corporate tax rates) in unlikely to recur in FY21E. Hence, we should expect a more normalised effective tax rate of 27-28% (MKE forecast: 28%) compared to 34% in FY20;
    5. First Resources targets to replant ~4,000 ha and no new planting in FY21E; and
    6. The Indonesian government may possibly review its export duty tax structure again in 2Q21 as current export levies collected is expected to exceed the disbursements requirement for its B30 subsidies amid narrowing POGO spread.

Focus is on downstream expansion






Ong Chee Ting CA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-03-09
SGX Stock Analyst Report BUY MAINTAIN BUY 1.880 SAME 1.880



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