A hands-on CEO. We had the privilege of meeting Mr Ciliandra Fangiono, CEO of First Resources (FR), recently to hear him articulate his vision and strategy. A second-generation planter and major shareholder, the CEO takes a hands-on approach to the business. FR’s core net profit has more than tripled since 2007 as a result of the strong foundation laid years ago. We expect its 3Q12 results to beat our and consensus estimates. We are keeping our earnings forecasts and TP of SGD2.15 (based on 14x FY13F PER) for now. Maintain BUY.

Building sustainable growth. FR is firmly guided by its vision to grow upstream oil palm estates to 200,000ha from 132,251ha (2011 nucleus area: 113,143ha), supported by an unplanted landbank of ~140,000- 150,000ha. Since 2005, 63,623ha of oil palm estates (averaging 10,604ha pa) have been planted, making FR one of the fastest-growing palm oil groups in the region. With a young tree age profile averaging 9 years, FR stands to enjoy ~10% YoY FFB output over the next three years. To sustain growth, it has set up a learning and R&D centre to ensure adequate supply of skilled labour and technical support.

Capturing margins across value chain. FR’s timely refinery venture since 1Q11 allows it the flexibility to capture and maximise profit margins at varying CPO-palm olein price differentials. Expansion is underway as it plans to raise its refining capacity to 850,000tpa (from 250,000tpa) by 2Q13, in tandem with the growth of its CPO production. However, FR will only go further downstream (ie. specialty fats and oleo-chemical) once it achieves 200,000ha planted area because at that size, it will be able to enjoy a stable stream of cash flow.

3Q12 results to beat estimates. We expect FR to post stronger QoQ (and YoY) net profit of at least USD54m for 3Q12. Stronger 3Q FFB (nucleus) output (+33% QoQ, +12% YoY) should offset lower CPO spot ASP (MPOB benchmark) in 3Q12 (-11% QoQ, -8% YoY). FR’s 9M12 FFB (nucleus) output growth of 15% YoY was ahead of our expectation where we had imputed a full-year growth of 12%. While details are unknown, we gather that FR locked in some forward and future sales (for 2H12 output) when CPO price was above MYR3,000/t.

Source: Maybank Kim Eng Research - 05 Nov 2012