Fair Value : S$2.30 | Recom : Outperform (Maintained)

Key visit highlights: (1) FFB production growth forecast maintained at 10% with upside bias for FY12; (2) New planting target lowered to more realistic levels; (3) CPO price view fairly neutral, on the back of slow demand; (4) Projected unit production costs for FY12 unchanged, but could turn out lower; (5) Expanded refinery capacity to be larger than FR's CPO production capacity by 2013; and (6) New RM2bn Islamic MTN's to be used for potential new landbank acquisitions.

FY12 10% FFB growth target maintained with an upside bias. FR's YTD-Sep 2012 FFB production growth was 17.8% yoy. Management is still maintaining its view that the rate of growth will moderate towards the end of the year, and is not changing its conservative 10% FFB production growth target for FY12, although it says this is now with an upside bias. Our original estimate also projects a 10% growth in FFB production for FY12, but we believe this is likely to be surpassed, given the healthy YTD numbers. As such, we are raising our FFB growth projection for FY12 to 13% (from 10%). For FY13-14, FR continues to guide for similar doubledigit FFB production growth, in line with our projections of 10-15% p.a..

New RM2bn Islamic MTN’s to be used for potential new landbank acquisitions. FR is looking to expand by acquiring new landbank in Indonesia, ideally plantation land with both planted and unplanted areas. On the downstream side, FR would not rule out moving into the oleochemical or specialty fat markets, if the margins are attractive enough. However, these are longer-term considerations, and not something FR is intending to go into in the immediate term. FR’s recently issued RM2bn 5- year Islamic medium term notes (IMTNs) with a distribution rate of 4.45% p.a. and that will be used for potential new acquisitions, and will enable FR to be more nimble with its acquisitions, if so required.

Risks. Main risks include: (1) a convincing reversal in crude oil price trend resulting in reversal of CPO and other vegetable oils price trend; (2) weather abnormalities resulting in an over- or under-supply of vegetable oils; 3) increased emphasis on implementing global biofuel mandates and trans-fat policies; and 4) a quick global economic recovery, resulting in higher-than-expected demand for vegetable oils.

Forecasts have been revised by between -2.3% to +6.6% for FY12-14.

Investment case. Post-earnings revision, we raise our fair value to S$2.30 (from S$2.20), based on unchanged target PER of 13x CY13 earnings. Maintain Outperform, as we believe FR is a rare stock which is still doing well amidst its peers and who will continue to benefit from the Indonesian export tax structure.

Source: RHB Research - 02 Nov 2012