SINGAPORE (Nov 14): First Resources on Monday reported 3Q17 earnings decreased 11% y-o-y to US$31.9 million ($43.4 million), while dropping 57% q-o-q from 2Q17.
Due to lower average selling prices and sales volumes, revenue for the quarter decrease 9.3% y-o-y to US$137.4 million.
See: First Resources' 3Q earnings down 11% to $43.4 mil on lower revenue
Following the group’s results announcement, RHB is maintaining its “neutral” call on First Resources with an increased target price of $2.13.
In a Tuesday report, RHB says that the group’s results came in above its expectations.
However, the group’s fresh fruit brunches (FFB) output growth moderated in 3Q17, rising 7.9% y-o-y, while increasing 36% q-o-q, due to seasonality of the peak output period.
RHB expects this growth to continue moderating in 4Q17.
Meanwhile, crude palm oil (CPO) prices were up 7% y-o-y in 9M17 at an average price of US$609/tonne, which was in line with RHB’s projection of US$612/tonne (pre-export tax) for FY17F.
“For every RM100/tonne change in CPO price, we estimate its earnings would be impacted by 4-5% pa,” says RHB.
Despite high feedstock costs, the group’s downstream division remained in the black during 9M17, due to higher selling prices.
However, margins dropped q-o-q to 2.4% in 3Q17 from 3% in the same period last year, due to lower product prices.
RHB analysts expects the group’s downstream margins to stay positive going forward, given the stabilising palm kernel and palm kernel oil price trends.
Maybank KimEng is also maintaining its “hold” call on First Resources with a target price of $2.04.
In a Tuesday report, analyst Ong Chee Ting says, “Results would have been better had it not for the sharp inventory build-up and lower-than-expected CPO average selling price (ASP) achieved during the quarter.”
The analyst estimates the group’s 9M17 all-in cost production at US$278/tonne, which is a 9% y-o-y decrease.
This may be an indication that the group has yet to substantially complete its fertilising application in 9M17.
Nonetheless, Ong believes that 4Q17 results could still be better q-o-q, potentially to be lifted by some inventory drawdown (boosting sales), and higher q-o-q FFB output.
“While we like First Resources for its strong long term fundamentals, current year valuation is now close to its five-year mean of ~17x,” says Ong.
As at 11.45am, shares in First Resources are trading at $1.93 or 2.22 times FY17 book with a dividend yield of 2.7%.
