Thursday, 18 June 2015

First Resources

UOBKayhian on 18 June 2015

FY15F PE (x): 16.4
FY16F PE (x): 12.9

Reiterate BUY on FR for its good track record of delivering good productivity, it being a beneficiary of the new policies in Indonesia and high leverage on CPO price movements. Based on our re-rated valuation, FR offers 59% upside from its current share price level if a strong El Nino occurs. Its FFB production growth is on track to meet our expectation of 9-11% for 2015. Going forward FR will slow down in new planting activities and focus on sustainability. Target price: S$2.40. Maintain BUY with a lower target price of S$2.40, based on 15x 2016F PE. We like FR as it is a beneficiary of Indonesia’s new export levy and biodiesel policies. It also has a good track record of delivering better-than-industry FFB yield and OER. In the event of El Nino, its sector valuation would usually expand closer to 1SD above its mean valuation. Based on a rerated valuation, the implied target price is S$3.19, and there will be 59% of potential upside to FR’s share price.

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