BUY; S$1.74; FR SP
2Q13 output below expectations
Price Target : 12-month S$ 2.18
•2Q13 CPO output came in at 126,797 MT – below expectations on annualized basis
•2Q13 FFB output from smallholders dropped by 24% y-o-y, after two consecutive years of c.40% growths
•2Q13 earnings expectations now reduced to US$45-50m from US$50-57m previously
•Take advantage of near-term weakness. We expect FY13 own FFB output to grow 10% y-o-y; and smallholders output flat.
First Resources reported Jun13 operating data today. 2Q13 CPO output was 126,797 MT (+10% y-o-y; +10% q-o-q) or 21% of our full year target of 592,151 MT, weaker than the 24% we were expecting.
The culprit was a marked deceleration in own FFB production growth to 5% y-o-y from 14% booked in 2Q12, despite inclusion of output from recently purchased GSI (since Nov12) and Lynhurst (since Feb13). Smallholders FFB output also fell 24% y-o-y (-14% q-o-q). We understand this reflects a slowdown after growing by c.40% p.a. in the past two years. However, the drop was partly compensated by jump in third-party FFB purchases to almost 6-fold from the previous year (these were mainly purchased for the group's West Kalimantan mill).
Assuming there was no further inventory draw-down and the group achieved CPO ASP of US$900/MT (18% higher than spot due to forward sales), FR may book 2Q13 net profit of US$45-50m (down 21-29% q-o-q), in our estimate. This would have missed our previous estimate of US$50-57m.
We understand output is expected to rebound in 2H13 and the management has not revised its guidance of 5-10% growth in own FFB production. We also expect smallholders' output to recover to match FY12 level by the end of this year.
Subject to changes to management guidance for 2Q13 results, we are maintaining our forecasts, TP and rating for the stock. FR's production will pick up again post-Eid festival inAug13. At current price, the counter is trading at undemanding 9.4x FY14F earnings. Any near term weakness would be an opportunity to accumulate the stock.
Publish date: 15/07/13