First Resources - UOB Kay Hian 2021-11-16: 3Q21 Results Below Expectations

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FIRST RESOURCES LIMITED (SGX:EB5)

First Resources - 3Q21 Results Below Expectations

• First Resources (SGX:EB5)’s 9M21 net profit came in below our and consensus estimates. We reckon that the negative variance was mainly due to the spillover impact from lower ASP contracted and the higher cost of production. Management also mentioned that the spiking fertiliser cost would dilute First Resources’s earnings moving forward.
• Maintain HOLD with higher target price factoring in higher CPO prices for 2022-23.

First Resources's results below expectations.

• First Resources reported net profit of US$52.8m (+ >100% q-o-q, +43% y-o-y) for 3Q21, while 9M21 net profit came in at US$82.9m (+14% y-o-y). This account about around 55% of our full-year assumption. The results are below our and consensus estimates, and we reckon that the negative variance was mainly due to:
  1. the spillover impact from lower ASP contracted during early-21,
  2. the higher cost of production, especially fertiliser cost, and
  3. higher effective tax rate.
• Revenue improved q-o-q and y-o-y in 3Q21, driven by higher ASP and better sales volume. The group had also benefitted from the revised levy structure that came into effect on 2 Jul 21, which resulted in higher net CPO ASP. In addition, sales volume was also boosted by the net inventory drawdown of 48,000 tonnes in 3Q21 as buyers held back their orders in 2Q21 in anticipation of Indonesia revising its levy structure downwards.
• Increase in cost of production. Management also highlighted the tremendous increase in fertiliser cost which had spiked to ~US$600/tonne per ha base on current spot prices vs around US$300/tonne previously. This would then translate into a higher total cost of production of about 20-25%, based on our estimates.

FFB production guidance for 2021 remains unchanged.

• First Resources's 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 then due to heavy rainfall. First Resources is undergoing the tendering process to secure 1H22 fertiliser.

Revised earnings forecast.

• We have reduced our 2021 net profit forecast by 19%, factoring in higher cost of an assumed 50% payout, we are expecting a dividend yield of 5.1%.
• See
  • First Resources's Share Price,
  • First Resources's Target Price,
  • First Resources's Analyst Reports,
  • First Resources's Dividend History,
  • First Resources's Announcements,
  • First Resources's Latest News.
• Catalysts:
  • 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.

Leow Huey Chuen UOB Kay Hian Research | Jacquelyn Yow Hui Li UOB Kay Hian | https://research.uobkayhian.com/ 2021-11-16

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.65 UP 1.400