Better quarters ahead. Lower sales volume, higher plantation costs and lower refining margins offset high locked-in CPO ASP resulting in sequentially lower 2Q13 net profit of USD38m (-41% QoQ, -26% YoY). 2Q13 results were in line, meeting 21% and 19% of our and consensus full year forecasts. We raise our FY13 net profit forecast by 13% on higher CPO ASP assumption (+18%) while cutting our FFB growth forecast to 4% (from 10%). FY14-15 forecasts are marginally tweaked. Maintain BUY with an unchanged TP of SGD2.06 on 13x FY14 PER.

A weak quarter, but within expectations. FR experienced delayed shipments towards end-2Q13 with an inventory build-up of ~30k MT as at quarter end. This resulted in lower sales volume of CPO and refined products at 124k MT (-14% QoQ, +1% YoY) and 38k MT (-30% QoQ, -38% YoY) respectively despite high FFB output growth of 14% QoQ (+5% YoY) during the quarter. FR continues to enjoy high CPO ASP achieved of USD911/t (-2% QoQ, -1% YoY) vis-à-vis Indonesia’s benchmark price of USD696/t (due to forward sales). Plantation costs were also higher in 2Q13 on higher fertilizer application. For 1H13, it has applied 60%-70% of its fertilizer requirements for the year.

Downstream margins bottomed in 2Q13. FR’s refining margins was low in 2Q13 at USD55/t (-67% QoQ, -25% YoY) due to low crop season and reduced hedging profits. In 2H13, FR plans to capitalize on the strong palm biodiesel demand by re-starting its biodiesel plant which provides higher processing margins vis-a-vis refining. And by 4Q13, FR’s 600k tpa new refining capacity (+140%) will come on stream.

Lowers production growth guidance. For 1H13, FR’s nucleus estates posted +0.6% YoY in FFB growth. Management is revising its nucleus FFB output growth guidance for FY13 to 0%-5% (from 10%) due to tree stress. We have thus cut our FFB growth forecast for FY13 to 4% (from 10%). Its 2H13 production should be aided by ~10,000 ha of new area that enters maturity this year (on top of the 8,634 ha acquired in 1Q13).

Source: Maybank Kim Eng Research - 14 Aug 2013