First Resources - Expect Stronger 4Q15

■ 3Q15 results in line.

■ We raise 2016-17 EPS by 5-8% after cutting USD costs to reflect IDR depreciation.

■ Accordingly, we lift TP to SGD1.73 from SGD1.60 on unchanged 13x 2016 PER. Maintain HOLD as we believe positives are in its price.

Low 3Q on low ASPs & net build-up of stock
3Q15 core PATMI of USD32m (-26% YoY, +11% QoQ) brings 9M15 core PATMI to USD88m (-23% YoY). This met 70% / 67% of our / consensus estimates, in line.

3Q’s YoY weakness was mainly due to a 25% YoY/16% QoQ decline in CPO ASPs, mitigated by FFB nucleus output, up 11% YoY and 35% QoQ. Net inventory build-up was also high at 70,000 MT. However, this was merely a timing issue as inventory normalised in Oct 2015. Downstream absolute margins were good at USD105/tonne, up 111% YoY and 15x QoQ. Besides benefiting from an export-tax differential of USD20-30/tonne, the division profited from hedging positions.

Output peaked in 3Q15 but profit to peak in 4Q15
We expect a much stronger 4Q15. While its FFB output could decline QoQ as production traditionally peaks in 3Q, 4Q15 sales are expected to be strong following inventory drawdowns. Downstream margins are also expected to be good.

Technical Analysis
Daily Chart
FR maintains its full-year FFB nucleus growth guidance of 10-15% (9M15: 15% YoY) as its oil palm estates, predominantly in Riau province, were largely spared from the dry spell enveloping the region in the last 2-3 months. While we maintain our HOLD, we raise TP to SGD1.73 from SGD1.60 after increasing EPS by 5-8% for lower USD costs. This is pegged at unchanged 13x 2016 PER, its 5- year mean valuation. (Read Report)

Read Related Reports
1) First Resources Ltd - Similar CPO sales lag trend, but refinery performs better in 3Q by Credit Suisse Asia Pacific Equity Research, published on 16 November 2015

2) First Resources Ltd - Stock build-up dampens 3Q earnings by CIMB Research, published on 13 November 2015

3) First Resources - Maintaining strong margins by DBS Group Research, published on 13 November 2015

4) First Resources - Largely In Line, Could Be Better by RHB Research, published on 13 November 2015

Source : Maybank Kim Eng Research

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