Saturday, August 17, 2013

First Resources 2Q13: Better-than-expected ASP And Refining Margin (UOBKH)

First Resources
Share Price S$1.78
Target Price S$2.40
2Q13: Better-than-expected ASP And Refining Margin

Results above expectation on better-than-expected ASP and refining margin. Forward selling has helped to boost FR’s ASP to be better than the industry. Although downstream margin was declining but it was much better than our expectation. FR has revised its FFB production growth target to 0-5% from 10% owing to the severe trees stress in 1H13. Maintain BUY. Target price: S$2.40.

Results
• Results above expectation. First Resources (FR) reported net profit of US$37.7m (-40.7% qoq, -25.7% yoy) for 2Q13 and US$101.3m (+1.6% yoy).


• 2Q13 results were above our expectation on the back of a) High CPO ASP achieved. FR reported CPO ASP of US$911/tonne (-1.9% qoq, -0.9% yoy) that is much higher than the current prices of US$680-750/tonne due to forward selling. b) Better-than-expected refining margin. Although FR’s refining EBITDA and sales volume were down 66.6% qoq and 30.4% qoq to US$55.3/tonne and 38,2000 tonnes in 2Q13 due to the rising competition from new capacity available in the market, it was still well above our expectation of US$30/tonne for full year 2013. Lower EBITDA qoq was expected as the 1Q13 margin of US$165.3/tonne is not sustainable as the bulk was contributed by good timing in the purchase of feedstock and locking in forward contracts. 2Q13 margin was also affected by higher feedstock prices vs 1Q13 as CPO production in Indonesia was low in 2Q13; and new refining capacities intensified competition for tight CPO supplies in 2Q13.

• CPO sales volume in 2Q13 was down 14.4% qoq (+0.6% yoy) mainly due to the drawdown of inventory of 15,000 tonnes in 1Q13 and build-up in inventory by about 30,000 tonnes at the end of 2Q13 due to the timing of shipment.

• Declared interim dividend of 1.25 S cent/share (2Q12: 1.25 S cent/share), representing a net dividend yield of 0.7%.

Stock Impact
• Slower production growth for 2013. Management has revised its 2013 FFB production growth guidance to 0-5% from 10% previously. The revision was due to the weaker-than-expected FFB production in 1H13, especially from the mature areas largely owing to more severe-thanexpected tree stress and the relatively slow recovery. FR has been delivering strong FFB production growth in the past two years and oil palm trees are undergoing the stress period now. Yield recovery is likely to be slow even going into 2014. We have adjusted our FFB growth expectation for the nucleus areas to 3% from 12.6% for 2013.

• Inventory built up to draw down in 3Q13. Management indicates that inventory built up in 2Q13 of about 30,000 tonnes was mainly due to the timing of delivery and will be delivered in 3Q13. The volume was already sold forward with locked-in prices and buyers. This would boost sales volume for 3Q13.

• Better-than-industry ASP to continue. FR’s forward selling activities has helped to maintain the better-than-industry ASP for the past few quarters. Management indicates that there are still some forward selling contracts to be delivered in 2H13 but the volume, which was not disclosed, would help to maintain the high ASP achieved. Due to the strong consistent ASP in the two quarters, we revised up our ASP for 2013 to US$902/tonne from US$852/tonne.

• Production cost to ease in 2H13. Cost usually would be slightly lower in 2H as the bulk of the fertiliser application was done in 1H. FR has completed about 60-70% of the full-year fertiliser application. For 2013, FR is guiding cost of production to be about US$260-280/nucleus CPO tonne in line with our expectation (2012: US$238/CPO tonnes) owing to the rising labour cost.

• Impact of lower fertiliser price yet to be felt because a) Indonesia fertiliser prices lag global pricing, and b) all 2013 required volume is already secured. The impact is likely to be felt in 2014. Potash makes up about 40% of the total fertiliser application tonnage and 30% of the cost of materials.

• Margin to improve for downstream operation. Downstream operation will move into more biodiesel production for 2H13 and this will help to ease the strong margin pressure for the refined palm olein and stearin. Since the announcement of the provisioning anti-dumping tariff on biodiesel from Indonesia and no tariff imposed on FR’s biodiesel, FR has started receiving orders from EU again and shipment should start towards end-3Q13. The current wide spread between crude oil price and CPO prices makes biodiesel very commercial viable.

• New planting ahead of peers. FR has planted about 6,755ha in 1H13 (1H12: 4,183ha) ahead of its peers. However, due to difficulty to secure labour for the new planting activities in East and West Kalimantan area, FR has revised its target to 12,000-15,000ha of new planting in 2013 from 15,000-20,000ha previously.

Earnings Revision/Risk
• We have revised our earnings forecast by +2.6%, -7.8% and -6.8% for 2013-15 to factor in the better-than-expected CPO ASP and downstream margin and weaker-than-expected FFB production growth. We are now expecting EPS of 11.9 US cent, 13.7 US cent and 15.0 US cent for 2013 to 2015.

Valuation/Recommendation
• Maintain BUY with a lower target price of S$2.40 (previously TP: S$2.60), based on 15x 2014F PE. We like FR for its hands-on management team, young age profile and efficiency.




Source/Extract/Excerpts/来源/转贴/摘录: UOBKH-Research,
Publish date: 14/08/13

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