Room for Stronger 2H18 Earnings

First Resources' 2Q18 core PATMI met 26%/25% of our/consensus full-year estimates – inline. We are keeping our forecasts, anticipating better 2H18 earnings.

Maintain BUY and unchanged Target Price of SGD2.00 on 17x FY18 PER, pegged at its 5-year historical mean. We continue to like First Resources for its medium-term growth prospect and cost efficiency, being one of the lowest cost producers in the region.

First Resources declared an interim DPS of 1.25sen.

Upstream & Downstream Posted Stronger Earnings

First Resources' 2Q18 core PATMI of USD36m (+55% y-o-y, +30% q-o-q) was lifted in part by the net inventory drawdown of 16,000 MT (following net inventory build- up of ~37,000 MT in 1Q18). Had it not for the higher effective tax rate of 33% due to withholding taxes on income received from foreign subsidiaries, its 2Q18 core results would have been even better.

Operationally, its higher 2Q output (+29% y-o-y, -1% q-o-q) more than offset lower CPO ASP (-9% y-o-y, -4% q-o-q). As for downstream division, it recorded good EBITDA margins of USD24/t (2Q17: +USD20/t, 1Q18: - USD4/t) which we believe was in part due to pick up in biodiesel order.

Source: Maybank Kim Eng Research - 14 Aug 2018