SG: First Resources (FR SP) Plantation - Promising July Output Growth

Price Target: $2.15 | Buy | Upside 6%

2Q12: A stable quarter. FR’s 2Q12 net profit of USD51m (+4% QoQ, +38% YoY) was within our and street expectations and brings 1H12 net profit to USD100m (+48% YoY), with the growth driven by higher FFB sales and strong downstream contributions. July’s strong FFB (Nucleus) production growth of 25% MoM/18% YoY holds promise of further upside to our FY12 net profit forecast, though we maintain our estimates for now. Maintain BUY and TP of SGD2.15 (14x FY13 PER).

1H12: Upstream boost. FR’s marginally higher quarterly net profit of USD51m (+4% QoQ, +38% YoY) was largely due to slight growth in FFB (Nucleus) output (+4% QoQ, +14% YoY) amidst flattish CPO ASP of USD852/t (+3% QoQ, +7% YoY). Strong 1H12 net profit of USD100m (+48% YoY) was also largely boosted by an 18% growth in FFB (Nucleus) output to 838,069 tonnes. 1H12 production met 43.5% of our FY12 forecast, in line with FR’s average 1H:2H production ratio of 43%:57% over the last four years.

Downstream contribution adds to growth. FR’s downstream division reported 2Q12 EBITDA of USD5m (-26% QoQ, +437% YoY) on a still-healthy EBITDA margin of USD73/t (-18% QoQ, +261% YoY). 1H12 downstream EBITDA rose 162% YoY to USD10m following the commissioning of its 250,000 tpa refinery in 2Q11. 1H12 downstream EBITDA margin was good at USD81/t (-12% YoY).

Still on a growth path. In 2Q12, FR added 1,517ha of new oil palm area in Indonesia to bring total 1H12 new planting to 4,183ha and total planted area under management to 136,434ha. The 1H12 new planted area was 35% of our 12,000ha assumption for all of 2012 (2011A: 11,421ha), and below FR’s internal target of 12,000-15,000ha. Still, momentum could pick up in 2H12.

Maintain BUY. 2H12 performance could surprise on the upside if July’s strong FFB (Nucleus) production growth of 25% MoM/18% YoY is sustained for the rest of 2012. Pending fresh guidance from management, we retain our 12% FFB growth assumption for 2012. FR remains one of the top BUYs in our universe of plantation stocks.

Source: Maybank Kim Eng Research - 15 August 2012