Wednesday, September 18, 2013

First Resources : Low production cycle ending? (CIMB)

First Resources
Current S$1.93
Target S$2.22
Low production cycle ending?

 First Resources reported higher mom production in Aug even though working days at the estates were impacted by the Ramadan festival. This could mean the low production cycle, due to biological tree stress, experienced by the group's estates may be ending soon.

We expect FFB yields to improve and peak in Sep or Oct and view Aug production data to be broadly in line with our expectations. We maintain our EPS forecasts and target price of S$2.22 (based on CY14 P/E of 12.3x or 1 s.d. above its mean). Maintain Outperform. We expect re-rating catalysts from higher production and better downstream contribution.

What Happened
First Resources posted a 1% mom rise in FFB production from its nucleus estates in Aug 2013 due mainly to higher FFB yields. FFB production grew 15.5% yoy driven mainly by newly mature and recently acquired estates, as the FFB yield of 1.9 tonnes/ha in Aug 13, was 10% lower yoy. The group's palm oil mills posted a 0.3%-pts mom improvement in the oil extraction rate to 23%. This, coupled with higher FFB purchased from third parties and plasma estates, resulted in a 5% mom rise in CPO production in Aug 2013. For 8M13, the group posted a 3.2% increase in FFB production from its nucleus estates.

What We Think
Aug production data was better than expected. We had anticipated flattish or weaker production numbers for Aug as we expect harvesting activities to be impacted by the Ramadan holiday. During the Ramadan festival on 8-9 Aug 2013, estate workers took 1-2 weeks of leave to celebrate the event. The better performance suggests to us that FFB yields at its estates are starting to recover from the low production cycle, which started around Sep 2012 when the group began to post weaker yoy monthly FFB yields. We view the 8M13 production growth of 3.2% to be broadly in line with our growth projection of 6% and the company's guidance of 0 to 5% growth for 2013.

What You Should Do
The higher production will benefit the group's 3Q earnings. We expect Sep production to be stronger mom due to seasonal factors. We continue to favour the stock for its young estates, strong management and healthy valuations. We maintain our Outperform rating.

Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 18/09/13

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