First Resources reported a reasonable set of 1H15 results in light of poor market conditions. Maintain BUY and SGD2.54 (39% upside). It is our top sector pick and we believe it will continue to be investors’ preferred plantation stock to own. The stock is trading at inexpensive 11x 2016 earnings, well-managed and has an excellent tree age profile.
■ Decent results
First Resources’ 1H15 core earnings made up 41% of our full-year forecast, which we deem in line given that 2H output is traditionally stronger. An interim dividend of 1.25 cents (SGD) was declared.
■ Raising production growth guidance
With its 1H nucleus production growth at 18.1%, management has raised production growth target to 10-15% compared with 5-10% earlier. Our imputed growth number is currently at 7.5%. We remain cautious on overall production outlook given that prior years’ subpar rainfall could still play into this year’s production. The company has also experienced dryness in July-August at most of its operating area.
■ No development on biodiesel
First Resources has not run its biodiesel plant in 1H this year while awaiting Indonesia’s mandatory B15 biodiesel programme to kick in. Management believes it will materialise as the export levy collection for the purpose of funding the biodiesel programme has already started since mid-July.
■ Maintain forecast for now
We are maintaining our forecast at this juncture. We note that consensus forecast has been trimmed to USD164m currently from USD185m during its previous quarter’s results release.
■ Accounting standard change
In the next quarter, we will need to factor in the change in accounting standard in Singapore which requires biological assets to be treated like property, plant and equipment, ie they have to be depreciated
. The company has yet to decide on its accounting options but will likely opt to account for biological assets at cost rather than current market value in order to keep depreciation down. (Read Report)
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Source : RHB Research
Labels: CPO, First Resources, Palm Oil