First Resources

Kim Eng on 13 Aug 2012

Maintain BUY. We expect FR to report flat QoQ net profit of ~USD49m (+33% YoY) on flattish ASPs and FFB output. Even so, FR’s estimated 1H12 net profit of ~USD98m (+46% YoY) would have met 57% of our former FY12 estimates. We now raise our FY12-14 net profit forecasts by 5.2-6.8% to reflect higher FFB output assumptions. However, our TP is unchanged at SGD2.15 (on 14x FY13 PER) as our earnings upgrades were offset by the surprise conversion of FR’s USD98.1m in Convertible Bonds (CB) in 1H12, despite expiring only on 22 Sep 2014.

1H12 FFB output up 17.7% YoY. FR’s 2Q12 FFB (nucleus) production was up 3.7% QoQ to 426,704 tonnes (+14.1% YoY), while 1H12 production of 838,069 tonnes (+17.7% YoY) met 45% of our previous FY12 forecast. This is above our expectations considering the average 1H:2H production ratio in the last four years was 43%:57%. Meanwhile, MPOB’s spot CPO ASP has been flat QoQ at MYR3,218/t (-4% YoY).

Downstream margin still strong. FR’s refinery continues to run at near full capacity given the good margins that Indonesian refiners enjoy presently. We expect its 2Q12 downstream EBITDA margin to be just as good, if not better, than the USD89/t recorded in 1Q12. FR has been producing mostly palm olein (i.e. cooking oil) and palm stearin in 1H12, while its biodiesel plant remains largely idle.

Raising our FFB output assumptions. Following the strong FFB output in 1H12, our earlier FY12 FFB growth assumption of 8.7% appeared conservative. Hence, we raise this to 11.6% or 2.116m tonnes (a 2.7% increase over our previous FFB output forecast). Correspondingly, we raise FY13-14 FFB output assumptions by 2.4% and 2.2% respectively. Our FY12/13/14 net profit estimates are now raised by 5.2%/6.8%/5.2%, largely on the revised FFB output assumptions.

EPS marginally diluted by CB conversion. Despite our raised net profit forecasts, our FY12-14 EPS forecasts were diluted by a marginal 1-2% following the conversion of FR’s USD98.1m CB into 114.34m new FR shares (+7.8% existing shares) during 1H12.