Maintain BUY. FR’s 4Q12 core net profit of USD47m (-26% QoQ, -5% YoY) brings FY12 core net profit to USD211m (+25% YoY), within our and street estimates. FY12 results were lifted by higher FFB output, and increased refining activities. We tweaked upwards our FY13-14F net profit estimates by 6%/5%. We roll forward our valuation and raised our TP to SGD2.33 (+3%) based on a lower target PER of 13x on mid- FY14 EPS (previously 14x FY13 PER), the lower rating for its slowing earnings growth after a high base. Still, we like FR for its long term value proposition, strong management, and low cost production.

2012: 12% FFB output growth. FR enjoyed another year of FFB (nucleus) production growth of +12% YoY. This is however below our estimates of +15% YoY as 4Q12 output growth slowed to 3% YoY. Due to earlier locked-in sales in 2H12, its realized 2012 CPO ASPs of USD882/t surpassed Indonesia’s benchmark (net) price of c.USD780/t. Overall, upstream EBITDA was up 9% YoY to USD293m. For 2013, FR guides for a 10% FFB output growth, in line with our estimates. Management guides that after two years of good harvest, the trees will need to rest, likely in 1H13. This will be partly offset by ~10,000 ha of new nucleus estates coming into maturity.

Strong downstream margins. Downstream FY12 EBITDA rose 11% YoY to USD30m on higher sales volume of refined products (+58% YoY), mitigated by lower refined palm ASPs of USD1,087/t (-12% YoY). Despite falling palm oil prices, FR’s FY12 EBITDA refining margins was good at USD134/t (-29% YoY). In 2013, its refining profits will expand as new refining capacity (600k tpa) will come on stream by 2H13.

LT growth engine sustained. FR achieved new plantings of 10,125 ha of oil palm (+11% to 125,805 ha) and 844 ha of rubber, and completed two new mill construction in 2012. 57% of its planted area is currently below 8 years old. And FR targets to plant another 15k-20k ha of oil palm trees and 4k ha of rubber in 2013. Two new mills will also be built in 2013. FR allocated USD200m in capex for its expansion in 2013.

Source: Maybank Kim Eng Research - 28 Feb 2013