May 12, 2017

First Resources (FR) reported core net profit of US$46m (-4.4% qoq, +>100% yoy) in 1Q17, slightly above our expectation of US$42m, and accounting for 32% of our 2017 forecast. The positive variance was mainly attributed to stronger realised palm kernel (PK) prices and higher sales volume from an inventory drawdown. The plantation division reported a >100% yoy surge in EBITDA (-29.1% qoq).

Refinery and Processing registered qoq and yoy increases in EBITDA on better EBITDA margin of US$37/tonne in 1Q17 (4Q16: negative margins, 1Q16: US$16/tonne).

We are maintaining our FFB production growth of 18% yoy for 2017, mainly supported by a yield recovery and new areas coming into maturity.

There will be 17,000ha of new areas coming into maturity in 2017 (10.7% of 2016 mature area), which should provide about 3% FFB production growth for 2017. Our forecast is higher than management’s guidance of 15% yoy, which we deem very conservative given that West Kalimantan’s production is expected to show good FFB yield (less impacted by the 2015 El Nino and have younger trees).

We forecast EPS of 9.1 US cents, 9.5 US cents and 9.9 US cents for 2017-19 respectively, and are maintaining our earnings forecasts as we expect weaker earnings in the coming quarters due to weakening CPO prices despite production recovery. We also await outlook guidance from management during the conference call.

Maintain BUY and TP of S$2.15, based on 17x 2017F PE, or its 5-year mean PE. –UOB

First Resources closed at: S$1.96