Initiate  with  “Accumulate”;  DCF-based  price  target  of  S$2.35,  19.9%  potential upside  (including  dividend  yield):  First  Resources  is  the  lowest  cost  producer  of crude  palm  oil  (CPO)  in  the  world  and  the  owner  of  one  of  the  youngest  CPO plantation  in  Indonesia  with  two  main  segments  (i)  upstream  Plantations  with over 160,000 hectares of (including 12 Palm Oil Mills),  and (ii) midstream Refinery with  two  fractionation  plants  (850k  tonnes  p.a.)  and  one  biodiesel  plant  (250k tonnes p.a.).

Young  age  profile  drives  strong  production  growth:  First  Resources' plantations are 8 years old on average, and 58% of its  planted area (as of end 3Q13) is less than 7 years old.  Albeit FFB yield declined in 2013 due to newlyacquired  assets  and  biological  downtrend,  we  see  strong  productivity  gains over the next few years  as its young  estates  mature.  We  expect a 17% CPO production growth in 2014, buoyed by yield recovery from biological cycle.

Best-in-class operational efficiency, stringent cost management drive lower cost:  First Resources' nucleus cost per tonne was US$238/MT in 2012, making it the lowest cost producers in the  industry.  While cost per tonne is expected to  increase  substantially  by  ~10%  in  2013  no  thanks  to  Indonesia's  higher annual minimum wage increase, we expect low single digit growth rate going forward, as production per hectare increases.

Rising EPS even with a flattish CPO price: First Resources' growing production plays  a  key  role  in  driving  its  12%  2-year  2013F-2015F  EPS  CAGR,  with increase  maturity  of  its  plantations.  Conservatively,  we  have  modeled  in  a flattish  CPO  price  from  2014  onwards,  as  we  are  neutral  on  the  CPO  price outlook in the near term on rising global oilseeds supply. We estimate every 10% increase in  our  CPO price  forecast  will add  ~S$0.51  per share (~22% to our valuation).

Investment  action,  risks:  First  Resources  is  one  of  the  cheapest  Plantation stocks  within the ASEAN space  (9.9x 2015F P/E versus  an average of  13-15x for  peers).  Our  DCF  (WACC  10.6%)  based  target  price  for  First  Resources  is S$2.35 (19.9% potential upside including dividend yield). We initiate coverage with  an  “Accumulate”  rating.  Downside  risks  includes  prolonged  plunge  in CPO prices, weaker-than-expected production output.

Source: Phillip Securities Research - 4 Feb 2014