SINGAPORE (Feb 28): Maybank Kim Eng is upgrading First Resources to "buy" with a higher $2.20 target price given the stock is trading at 1 SD below historical mean.
"Recent selldown presents accumulation opportunity for this sector bellwether," says analyst Ong Chee Ting in a Tuesday report, adding that First Resources is still one of the lowest cost producer in the region.
In FY17, First Resources' headline PATMI grew 10% y-o-y to US$138 million. Adjusted for fair value gain on biological assets, core PATMI grew 21% to US$139 million which met 99% of Maybank's estimates.
The upstream division enjoyed 6% growth in EBITDA to US$272 million underpinned by higher Fresh Fruit Bunches (FFBs) output and higher CPO average selling price achieved of US$603/tonne.
Even its downstream division returned to the black with an EBITDA of US$19 million and an estimated EBITDA margin of US$21/tonne.
Post El-Nino, FFB output rebounded strongly by 13% y-o-y to FY17, driven by higher FFB yield and higher mature area.
Maybank also expects a 12% and 11% core EPS growth for FY18 and FY19 respectively.
Meanwhile, CIMB is maintaining First Resources at "add" due to the group’s estates’ young age profile.
First Resources is targeting FFB output growth of 10-15% for FY18, driven by improving yields and new mature area of 16,000 ha, says CIMB analyst Ivy Ng Lee Fang.
The group also plans to plant 3,000-4000 ha of new oil palm estates and replant 800 ha of old estates.
Management has guided for average cash costs of production of US$200-220 per tonne for FY18, broadly in line with FY17’s achievement of US$217 per tonne.
The group is also continuously exploring potential M&A to expand its upstream operations.
"We cut our FY18-19 earnings forecasts by 12-14% to reflect higher operating expenses and effective tax rate. This has led us to cut our target price to $2.03," says Ng.
To commemorate the 10th anniversary of its listing and the 25-year anniversary of its establishment, First Resources declared a special dividend of $0.034.
The special dividend is a one-off and will attract higher withholding tax expenses for the company on dividend income received from foreign subsidiaries. This will most likely be recognised in 2Q18.
Shares in First Resources are down 1 cent at $1.78 or 18.2 times FY18 core earnings.
