Simons Trading Research

First Resources - Biodiesel – Price Catalyst From September?

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Publish date: Wed, 15 Aug 2018, 09:05 AM
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  • Stay NEUTRAL with an unchanged Target Price of SGD1.60, 2% upside.
  • In 2H18 we expect FFB growth to taper, costs to rise, while downstream profits should improve on higher sales volumes and margins;
  • The Indonesian Government’s new biodiesel mandate is due for implementation in Sept 2018; this is expected to result in a stronger domestic take up and CPO usage of at least 5m tonnes in 2019 (double that of 2018F). Nevertheless, implementation is key and we prefer to adopt a wait-and-see attitude before changing our forecasts;
  • Our Top Pick for a Singapore-listed plantation stock is Wilmar.

FFB Growth to Moderate in 2H18

FFB growth to moderate in 2H18 after it grew 20.7% y-o-y in 1H18. As weather is relatively normal at most of its estates, it is now guiding for a FFB output growth of 15% for FY18 (from 10-15% previously).

In terms of seasonality of production, it expects 1H/2H output to be at a 45%/55% ratio. We leave our FFB growth forecast intact, at a more conservative 13.4%, for FY18. We estimate unit costs dropped 6% y-o-y in 1H18, on the back of a lower fertiliser application of 50% of total (versus normal levels of 55-60%).

Management expects CPO unit costs to be relatively stable, at USD200- 220/tonne in FY18, in line with that of FY17.

Source: RHB Invest Research - 15 Aug 2018

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