Maintain BUY. FR’s 1Q13 core net profit of USD64m (+34% QoQ, +30% YoY) was ahead of expectations, at 36% of our forecast and 31% of consensus. 1Q results were lifted by higher CPO ASP achieved on forward sales locked-in in 2012, and the drawdown of inventories to boost sales volume. 1Q is a disproportionate 36% of our full year forecast but we are maintaining our full year forecast as 1Q was boosted by factors that will not be repeated. Still, we like FR for its longterm value proposition, strong management, and low production cost.

Maintain BUY with TP of SGD2.06 (+11% upside) on 13x FY14 PER. A strong quarter. Despite posting low FFB (nucleus) output in 1Q13 at 394,757t (-24% QoQ, -4% YoY), FR’s 1Q results outperformed on (i) high CPO ASP achieved of USD929/t (+10% QoQ, +3% YoY) vis-à-vis Indonesia’s benchmark price of USD666/t (due to forward sales), and (ii) high sales volume of 145,024t (+2% QoQ, +20% YoY) due to the drawdown of inventories of 45,000t.

Expansion of downstream margins. Downstream 1Q13 EBITDA rose 168% QoQ to USD9m (+57% YoY) on higher refining margins of USD166/t (+83% QoQ, +86% YoY), and a 47% increase in sales volume of refined products (-16% YoY). Given FR’s lower refined palm ASP of USD936/t (-5% QoQ, -13% YoY), we believe FR benefited from lower raw material cost in 4Q12. In 4Q13, FR’s 600k tpa new refining capacity (+140%) will come on stream.

A year of two halves for production. FR maintains its guidance of a 10% FFB output growth (in line with our estimates) as ~10,000 ha of new nucleus estate will enter maturity in 2013 despite the negative growth recorded in 1Q. FR expects production to recover in 2H13. On expansion mode. FR achieved 3,700 ha of oil palm new plantings for 1Q13, on track for its full year target of adding 15k-20k ha of oil palm trees in 2013. In 1Q13, FR completed the acquisition of Lynhurst which added ~8,000 ha of oil palm assets and ~11,000 ha of unplanted landbank.

Source: Maybank Kim Eng Research - 15 May 2013