Maintain BUY. We hosted First Resources (FR) on a NDR in Kuala Lumpur (KL) last week. Key takeaways from the meeting: (i) FR has locked-in some good ASP for deliveries in 2013 when CPO price was still high back in 9M12, (ii) FFB output to grow ~10% YoY in 2013, and (iii) low palm oil prices are seen as stimulating Europe’s demand in the energy and transportation sectors. FR remains a BUY for its long-term value proposition, strong management and low cost production. TP is unchanged at SGD2.33 on mid-FY14 13x PER target.

Upstream: Double-digit organic growth in 2013. FR’s CEO, Mr Ciliandra Fangiono and IR manager Ms Yuh Chien met over eight local fund managers recently. After two years of good harvest at its nucleus estates in 2011 and 2012 with 19% and 12% YoY growth respectively, FR is guiding for a slowdown in production in 2013 as the trees have take a rest. Still, it is projecting a ~10% growth in FFB output in 2013, as lower productivity is offset by ~10k ha (+12%) of new nucleus estates coming into maturity. FR will also benefit from high CPO ASP locked-in in 2012 when prices were still high in 9M12. Although it is tight-lipped on the quantum, it indicates it is “not insignificant”.

Downstream: New refining capacity in FY13. FR’s 600k tpa (+140%) of new refining capacity in Dumai will come on-stream in 2H13. Its FY12 EBITDA refining margins were good at USD134/t (-29% YoY), but FR cautions that FY13’s EBITDA refining margins could be lower as Malaysian refiners’ competitiveness improve following changes to its CPO export tax structure (wef 1 Jan 2013), and substantial new capacities are added into Indonesia. We have conservatively assumed USD62/t in EBITDA refining margins for FY13 in our forecast.

Still on expansion mode. FR has allocated USD200m in capex for its expansion in 2013, to be funded by its yearly operating cash flow and low net gearing of 12% (as at 31 Dec 2012). For 2013, FR targets to plant another 15k-20k ha of oil palm trees and 4k ha of rubber. Two new mills will also be built in 2013, in addition to refinery capacity expansion.

Source: Maybank Kim Eng Research - 13 Mar 2013