• Maintain NEUTRAL and SGD1.65 TP, 7% upside. First Resources’ 9M24 results were largely in line with our, but above consensus FY24 forecasts. We expect production to be lower QoQ in 4Q, coming off from its peak output, while costs could register slightly higher on a lower output base. Valuation remains fair, as the stock is trading at 9x 2025F P/E – in line with its peer range of 7-11x.

• 3Q24 core profit slipped 10% QoQ (+19% YoY), bringing 9M24 earnings to USD151.6m (+c.28% YoY). The lower QoQ profit occurred despite stronger QoQ FFB output and higher ASPs, likely due to higher QoQ unit costs as FR applied more fertiliser during the quarter.

• 9M24 earnings were in line. 9M24 earnings came in largely in line with our, but were above Street forecasts at 78% and 82% of FY24F, on the back of higher-than-expected FFB output and improving downstream margin.

• Briefing highlights:

i. 3Q24 nucleus FFB production jumped 25% QoQ (+2.9% YoY), bringing 9M24 FFB output to an increase of 5.2% YoY. This is in line with management’s previous guidance of c.5% but slightly above our +3.5% forecast. As FR has hit its peak output in 3Q24, we expect production to moderate in 4Q24, and therefore keep our FY24 FFB output estimate of +3.5% YoY;

ii. Inventory build-up in 9M24. As at end-9M24, FR had an inventory buildup of 1,000 tonnes vs a drawdown of 44,000 tonnes in 1H24. This was due to timing issues and should be cleared by year end;

iii. Fertiliser application improved in 9M24, unit cost guidance flat. FR applied about 70% of its fertiliser requirements in 9M24 (up from c.40% in 1H24) and hopes to be able to catch up on its application by year end. Nevertheless, it is maintaining its unit cost guidance at USD280- 300/tonne for FY24 (-8-15% YoY);

iv. Downstream margin improved QoQ in 3Q24. This was due to the rising CPO price environment and the time lag impact of pricing of raw material purchases. Going forward, management highlighted that margins should continue to improve in a rising CPO price environment, although the volatile export tax and levy movement could complicate matters.

• Forecasts tweaked upwards. We tweak our FY24F-26F earnings up by 3.2%, 1.5% and 1.6% after adjusting up our downstream margins slightly.

• Keep NEUTRAL with relatively unchanged SGD1.65 TP. Our TP is based on an unchanged target 11x 2025F P/E and includes an 8% ESG discount based on an ESG score of 2.7. Valuation is fair, as FR is trading at 9x 2025F P/E, in the mid-range of its peers’ 7-11x.

Source: RHB Securities Research - 15 Nov 2024