FY13 core net profit beat our and Street expectations.

Outperformance mainly due to forward sales made in 2012 when CPO price was still high.

Maintain BUY with a higher TP of SGD2.70 on 15x FY15E P/E after rolling forward our valuation base year.

What’s New

First Resources’ (FR) FY13 core net profit of USD217m (+3% YoY) met 108% of our and consensus full-year forecasts. The earnings outperformance was mainly due to high CPO forward sales locked-in in early 2012, which led to a relatively high (net) CPO ASP of USD861/t for 2013, higher than Indonesia’s benchmark price of USD717/t.

What’s Our View

In 2014, we expect FR to post a 6% decline in PATMI as all its forward sales were delivered in 2013. We also assume that it will achieve our industry-wide CPO ASP forecast of MYR2,600/t (or USD748/t net of Indonesia’s export tax), which is lower than what it enjoyed in 2013. However, the lower CPO ASP will be mitigated by our 14% FFB growth projection for 2014. In our view, investors should not be disheartened by possibly lower FY14E earnings given a high base due to the outstanding performance in FY13. Instead, they should look forward to a 10.8% EPS growth in FY15E and value FR’s proven management capability.

We continue to like FR for its long-term value proposition, backed by its plantable reserves of 100k ha, young tree age of eight years (average) which will sustain a projected 11.8% FFB output CAGR (2013-2016), and low cost of production. We raise our FY14E-15E forecasts slightly on housekeeping. Maintain BUY with a higher TP of SGD2.70, based on 15x FY15E P/E (previously SGD2.39 on 15x FY14 P/E), as we roll forward our valuation base year.

Source: Maybank Kim Eng Research - 26 Feb 2014