Integrated Model Weathers the Rough Times Better

• We cut our FY19-21E EPS by 7%-19% mainly on our lower industry-wide CPO ASP assumptions.
• We have rolled forward our valuation base year to FY20 from FY19 but kept our Target Price unchanged at SGD1.93 on an unchanged 17x PER peg, its 5-year historical mean.
• Still, we reiterate our BUY call on FIRST RESOURCES (SGX:EB5) given its medium-term growth prospect, cost efficiency, and integrated business model to better weather any low CPO price environment.

Cutting CPO ASP Forecasts in USD by 7%-11%

• Following the weaker-than-expected CPO price in 1H19 on ample palm oil supply, we have revised down our industry-wide 2019-21E CPO ASP forecasts to MYR2,100/t (from MYR2,350/t, -10.6%), MYR2,300/t (-8.0%) and MYR2,400/t (-5.9%).
• But given the weakness in MYR against USD, the cut in our 2019-21E CPO ASPs in USD terms is slightly steeper at USD508/t (-11.3%), USD554/t (-9.2%), and USD578/t (-7.1%) respectively.

Expect Stronger Crop in 2H19

• We have kept our FY19-21E FFB output growth unchanged. For FY19, we anticipate a 6% y-o-y FFB output growth, broadly in line with management’s guidance of ~5% y-o-y.
• While 2018’s 1H:2H output ratio was 46:54, First Resources guides for 2019’s ratio at 40:60 (vs 2011-18 historical trend of 43:57) as output is likely to peak later into the year.

Cut EPS by 7%-19%

• Following revisions to our CPOSP and slight tweak to our forex assumptions, our FY19-21E EPS are cut by 19%/17%/7% respectively. We continue to like First Resources for its medium-term growth outlook as we project a +8% 3-year FY18-21F output CAGR.
• First Resources is also one of the low producers in the region with an all-in operating cost of production of ~MYR1,100/t in FY18.
• See also sector report: Regional Plantation - A Better 2H In The Making.

Source: Maybank Kim Eng Research - 28 Jun 2019