Maintain NEUTRAL, with new SGD2.20 TP from SGD2.00, 4% upside. First Resources’ 1QFY22 results came in slightly above expectations. While the current export ban will be negative for all Indonesian players, we do not expect it to be in place for long. While earnings should continue to be strong with FR fairly valued, it is trading at 8.7x 2023F P/E – the high end of its peer range of 5-10x. Nevertheless, dividend yield at 50% payout should lend support, implying 6.5% FY22F yield.
1Q22 net profit rose 736.4% YoY to USD73.6m. This came in slightly above expectations, making up 29-30% of our and Street FY22F earnings, largely due to higher ASPs achieved.
Briefing highlights:
i. 1Q22 nucleus FFB production dropped 7.8% YoY, lower than our 2.7% growth projection and management’s 0-5% guidance for FY22F. FR is maintaining its FFB growth guidance, as it expects production to pick up in 2H22, with 1H:2H output being in the 45%:55% range. We keep our FY22-23 growth assumptions at 2-5%;
ii. Forward sales continue, but to a lesser extent. FR continues to hedge forward for 2022. However, no details were disclosed on volume, except that some of these shipments would be delayed due to the export ban, while there are also some sold forward up to 3Q. We highlight that there was an inventory build-up of 31,000 tonnes in 1Q22;
iii. Export ban impact. About half of FR’s sales volume is affected by this ban, while about 25% is sold as biodiesel domestically and another 25% as exportable derivatives. Management highlighted that some changes could be made with the policy soon, with some possibilities including the raising of the ceiling price for bulk cooking oil to IDR17,000/litre; the appointment of a government entity to buy controlled price olein from producers to ensure supply to the domestic market; and potentially raising export levy by another USD10-14/tonne to set aside specifically for cooking oil subsidies. To address the ban, FR has reduced purchasing of third party fruits, while holding back sales of CPO given its storage capacity which can last for another month.
iv. Unit costs expected to rise 10-15% YoY to USD270-290/tonne in FY22, due to higher fertiliser costs of >60% YoY. FR has applied <25% of its fertiliser requirements in 1Q22 thus far, and has secured about 60- 70% of its fertiliser requirements for the year.
Maintain NEUTRAL. We raise FY22-23 forecasts by 3-26%, after imputing higher CPO prices of MYR5,300/tonne (from MYR4,300) for 2022F and MYR4,300/tonne for 2023F (from MYR3,600). With this, our TP rises to SGD2.20 (from SGD2.00), after rolling forward our valuation period to 10x 2023F P/E. This includes an 8% ESG discount, given its ESG score of 2.6.
