First Resources - UOB Kay Hian 2021-05-18: Looking Forward To 2H21


First Resources - Looking Forward To 2h21

  • First Resources’s 1Q21 net profit came in significantly lower y-o-y and q-o-q. This does not come as a surprise as First Resources had forward sold a significant volume of its 1H21 production earlier at lower ASP and yet still needs to pay a higher export duty and levy. However, 2H21 should come in significantly better on higher production and more reflective ASP. We also expect further potential earnings upside of 12%, if the Indonesian government revises the export levy downward.
  • Maintain BUY. Target price: S$1.65.


Results below expectations.

  • First Resources (SGX:EB5) reported a 1Q21 net profit of US$8.8m (-55% q-o-q, -60% y-o-y). The results are below our and consensus forecasts mainly due to the impact of higher export taxes from the new export levy structure.

First Resources forward sold a significant volume of its 1H21 production,

  • before CPO prices started to appreciate in the last few months of 2020. This would translate to a lower-than-expected realised price for 1H21 vs the current market price, as committed prices were lower and did not include the current high export levy and duty. This resulted in a lower net selling price as compared with the spot price, especially for 1H21.

Inventory level build-up remained flat q-o-q in 1Q21.

  • Management also guided that the inventory build-up in 1Q21 remained flat q-o-q. Recall that in 4Q20, the inventory build-up mainly took place in Dec 20 as there were logistical issues transporting CPO due to the high rainfall and flooding in East Kalimantan. While these logistical issues had been resolved due to better weather conditions in 1Q21, further delays may be expected in some exports as ships to India have to be quarantined for a few days.
  • We still expect First Resources's upstream operating earnings to increase ~24% in 2021 on the back of:
    1. higher y-o-y sale volume which includes the carried-forward sales from 4Q20,
    2. better production growth in 2021, and
    3. higher y-o-y net selling prices.
  • There would also be further potential upside for First Resources if the Indonesian government revises the export levy structure downwards. Should this materialise, there would be 12% potential upside to First Resources’s earnings, based on our calculations.


Downstream performance remained healthy in 1Q21.

  • Management stated that 1Q21 earnings beat 1Q20’s. We attribute this mainly to the current Indonesian export levy structure and high sales volume, with utilisation rate at 100% in 1Q21.

Overall downstream margin might be weaker in 2021, mainly dragged by lower biodiesel margins.

  • However, this would be partially mitigated by higher biodiesel demand with better traffic in 2021, and also stable margins from its other refined products benefitting from the Indonesian export levy structure.

FFB production guidance for 2021 remains unchanged.

  • Management maintains its FFB production growth guidance at 0-5% y-o-y for 2021, supported by a recovery in production as well as higher yield. We have factored in a 4% FFB production y-o-y growth with the weather forecast indicating fewer droughts in 2021, which bodes well for a good recovery in 2H21.

Fertiliser application was behind schedule in 1Q21, which accounted for about 20% of First Resources’s full-year target.

  • This was mainly attributed to the high rainfall in Jan-Feb 21, which saw floods at some of its estates.
  • Moving into 2Q21, the wet situation has eased and fertiliser application has returned to a normal pace.


Maintain earnings forecasts.

  • As we reckon that First Resources would deliver a strong h-o-h performance in 2H21, we maintain our earnings forecasts at US$150m, US$130m and US$140m for 2021-23 respectively.



  • Stronger-than-expected CPO price recovery. First Resources’s earnings are still largely dependent on upstream contributions, and higher CPO prices are positive to its earnings.
  • Higher-than-expected FFB and CPO production.

Jacquelyn Yow Hui Li UOB Kay Hian Research | Leow Huey Chuen UOB Kay Hian | https://research.uobkayhian.com/ 2021-05-18
SGX Stock Analyst Report BUY MAINTAIN BUY 1.65 DOWN 1.700