Remains Underappreciated, BUY

• First Resources (SGX:EB5)’s 2019 net profit will benefit from high brought forward inventory in addition to higher FFB growth, driven by new areas coming to maturity and a young tree age profile. Meanwhile, cash cost (per tonne) will be lower y-o-y on cost control.
• We reiterate our BUY call and Target Price of SGD2.03 on unchanged 17x PER peg, its 5-year mean.
• We continue to like First Resources for its medium-term growth prospect, cost efficiency.

A Well-received Non-deal Roadshow (NDR)

• We recently hosted a 1-day NDR in KL for Mr Fangiono (CEO), Ms Jenny (CFO) and Ms Xiao Han (IR), and met ~30 FMs/ analysts. Key takeaways:
  1. First Resources is expecting 5-10% FFB growth for 2019 (MKE forecast: +9% y-o-y; 2018: +14% y-o-y).
  2. Unit cash cost is guided to be lower at USD220/t in 2019 (2018: USD237/t) due to savings from yield increase and less road upgrading, among others.
  3. While 2018’s 1H:2H output ratio was 46:54, 2019’s ratio may revert to historical trends (2011-18: 43:57).
  4. First Resources has ~50,000 ha of unplanted land, although actual plantable is likely to be smaller. But FR made no commitment on the timeline to complete planting them.
  5. First Resources targets 1,500ha of new planting in 2019 and another 1,500ha of replanting (cost guidance of ~USD5,000/ha, 3-years to maturity).
  6. First Resources plans to build another refinery in the future but is unlikely to venture into oleo given the lack of tax incentive.

Positive on Indonesia’s B20 Programme

• On the industry, Mr Fangiono is optimistic of Indonesia achieving its B20 mandate, increasing demand by ~2.0m KL (or ~1.74m MT) in 2019. This is aided by ~USD1.5b cash in its CPO Fund which is sufficient to fund its B20 programme in 2019 even if the CPO export levy collection remains suspended. And B20 mandate is unlikely to waver post April’s election.

Maintain Our Earnings Forecasts

• In 4Q18, there was a net inventory build-up of ~31,000 MT. The build-up is in part due to the delay in biodiesel delivery to Pertamina. The inventory will be delivered and recognised as sales in 1Q19.
• We are keeping our EPS forecasts, anticipating a 14% EPS growth for 2019.

Source: Maybank Kim Eng Research - 14 Mar 2019