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First Resources - Strong Earnings Delivery Continues

kiasutrader
Publish date: Thu, 27 Feb 2014, 11:02 AM
First  Resources  (FR)  delivered  another  year  of  strong  earnings performance, beating our forecast and consensus  estimates. We raise our FY14 earnings forecast by 6% to USD229m,  which results in its  FV being raised to SGD2.86 from SGD2.70 earlier. The stock  is  trading  at 12x forward earnings, which is undemanding. Maintain First Resources as one of our key BUY ideas.
  • Exceeding  expectations.  FR beat our  FY13 core earnings  forecast by 20% and consensus by 8%. Topline and EBITDA were in line with our forecast but interest expense was lower than we expected . Elsewhere, there was a significant surge in downstream profits in 4Q, which was due to biodiesel demand. FR raised its final dividend to  3.25 Singapore cents (2.75 cents in FY12), bringing the total dividend to 4.50 cents.
  • Production growth. The company managed to chalk up a 6.5% nucleus production  growth despite the adverse  weather last year, thanks to the contribution from newly mature  land  and acquisitions. FFB yield suffered a significant decline from 23.0 tonnes in FY12 to 18.7 tonnes in FY13. Management expects yield to come in at 22 tonnes this year, with growth guidance  of  5  -  10%.  We  are  keeping  our  FY14  production  growth forecast conservative at 3% given the weather uncertainty.
  • Area growth.  As at end FY13, FR had 148,727 ha of nucleus planted area  of  which  104,493  ha  area  mature.  Including  plasma,  its  planted area  comes  up  to  170,596  ha.  During  the  year,  the  company  added 24,193 ha of new area of which 15,559 ha were new plantings and the balance were acquired.
  • Marginal earnings growth. We believe FR will continue to do well this year  due  to higher  production  and lower  cost  (cash cost  at  USD220  -260 per tonne of CPO vs USD255 in FY13). However, given its strong FY13 performance, which had a lot to do with high priced  forward sale, its FY14  earnings  will only be marginally better  at USD229m.  Our FY14 forecast is raised by 6% to factor in slightly higher production and lower interest expense. FR is trading at undemanding 12x FY14 and 10x FY15 earnings. Maintain Buy. 




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Company Profile
First Resources is an Indonesian planter listed on the SGX, with most estates located in Sumatra. It is involved  in both upstream and downstream palm oil businesses.

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Source: OSK
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