3Q beat our forecast but met consensus

After a dismal 1H16 that met only 36% of our FY16E, 3Q16 EPS caught up, with 9M16 forming 76% of our FY16E. As 3Q beat largely on the back of higher-than-expected net CPO ASPs, we raise 2016-17 EPS by 21%/9% for this. We also raise TP to SGD1.97 from SGD1.80, still at 17x 2017E P/E, its 5-year mean, after our EPS revisions. However, downgrade FR to HOLD from BUY given limited upside to our revised TP. Prefer Bumitama Agri (BAL SP, BUY, TP: SGD0.97) in the sector.

Higher CPO ASPs overshadowed lower output

3Q16 core PATMI grew 37% QoQ and 26% YoY to USD36m. This brought 9M16 core PATMI to USD67m (-13% YoY), which met 76%/68% of our/consensus FY16 forecasts. Its 3Q16 strength came from: i) seasonally stronger FFB output coupled with better CPO ASPs; ii) positive downstream EBITDA margins of USD59/t (2Q16: -USD11/t, 3Q15: USD105/t); and iii) a net inventory drawdown of 4,000 MT to capitalise on strong CPO prices.

9M16 FFB output at 70% of our 2016E

3Q16 FFB output grew 43% QoQ to 0.68m MT though it was down 11% YoY. This was due to the lagged effects of the 2015-16 El Nino (1H16: -16% YoY). 9M16 FFB of 1.60m MT (-14% YoY) formed 70% of our FY16E. 3Q’s lower output was more than compensated by higher CPO ASPs of USD611/t (+23% YoY, -2% QoQ).

Raising FY16-17 EPS by 21%/9%

FR’s FFB output traditionally peaks in 3Q (Fig 2). However, given the tapering effects of El Nino, FR has kept its 2016 guidance of a 10% YoY decline in FFB output, in line with our expectation. We raise FY16-17 EPS by 21%/9% for higher assumptions of: i) net CPO ASPs of USD572/t (+4% for FY16); and ii) net PK ASPs of USD458/t (FY16: +39%) and USD390/t (FY17: +16%). 2016’s PK prices are unsustainable. Risks to our forecasts include CPO price volatility and weather anomalies impacting output.

Source: Maybank Kim Eng Research - 11 Nov 2016