1Q14 core net profit within our expectation but below consensus estimates.

We expect earnings to pick up in subsequent quarters as 1Q is typically its weakest production quarter.

Maintain BUY with an unchanged TP of SGD2.70 on 15x FY15E P/E.

What’s New

First Resources’ (FR) posted 1Q14 core PATMI of USD45m (-29% YoY, -30% QoQ), which accounted for 22% and 19% of our and consensus forecasts. We consider the results to be in line as we expected strong quarters ahead. The weaker YoY results were mainly due to lower CPO ASP achieved of USD741/t (-20% YoY, -6% QoQ) as higher price forward sales locked in earlier depleted. The YoY weaker CPO ASP was partly compensated by higher FFB output (+13% YoY) and CPO sales (+14% YoY).

1Q14 downstream EBITDA fell to USD3m (-68% YoY, -77% QoQ) or USD23/t on weak refining margins. The low margin was both seasonal (due to tight supply of CPO on low crop months) and structural (affected by excess refining capacity in Indonesia).

What’s Our View

We maintain our earnings forecasts as we expect stronger FFB output in the coming quarters to boost earnings. As for downstream, while expect margins to pick up in 2H14 during the high crop months, the full-year margins are still expected to be lower than that of 2013.

We continue to like FR for its long-term value proposition, backed by its plantable reserves of 100k ha (+56% to existing), young tree age of eight years (average) which will sustain a projected FFB output CAGR of 11.8% over 2013-2016, and low cost of production.  

Source: Maybank Kim Eng Research - 15 May 2014