Lowest Cost Producer With Good Growth

• We revised our FY18-20E EPS by -10%/+1%/+4% following our industry-wide CPO ASP revision, lower output and higher tax assumptions.
• Our new Target Price for First Resources is SGD2.00 (previously SGD2.20) on unchanged 17x FY18 PER peg (5-year historical mean).
• We continue to like First Resources for its medium-term growth prospect and cost efficiency. By our estimate, First Resources is the lowest cost producer in our universe of coverage. 
• (Maintain BUY)

Raising CPO ASP Forecasts in USD by +1-6%

Following the lower-than-expected CPO spot ASP achieved YTD (Jan-May) of MYR2,442/t in Malaysia and muted near term price outlook amidst still ample palm oil stockpile, we now cut our 2018 industry-wide CPO ASP forecast to MYR2,450/t (-6%). We also lower 2019-20 forecasts to MYR2,500/t (-4%) and MYR2,600/t (-2%).

Compared to a year ago, Ringgit has strengthened against US Dollar by ~7%. Given the MYR strength, our 2018-20 CPO ASP assumptions in US Dollar are raised to USD620/t (+1%), USD633/t (+3%), and USD658/t (+6%) respectively.

Trim Our FY18-20E Nucleus Output

1Q18 FFB nucleus output (+13% y-o-y) met 23% of our full-year forecast. However, we now take the opportunity to trim our FY18E FFB nucleus growth output to +13% y-o-y (previously +17% y-o-y) to be within First Resources’ growth guidance of +10-13%.

In absolute terms, we trim our FFB output estimates by -3% for FY18, and a slight -1%-2% for FY19-20. Despite that, we still forecast an 11% 3-year FY17-20F CAGR in FFB output, driven by its relatively young tree age profile of ~11 years (average).

A Cost Efficient Producer

Besides revising our ASP and output assumptions, we have also imputed a chunky USD6m withholding tax negative impact in our FY18 forecast as guided by First Resources.

First Resources is one of the lower cost producers in the region with all-in operating cost of production at e.~MYR1,000/t in FY17.

Source: Maybank Kim Eng Research - 08 Jun 2018