First Resources

Kim Eng on 14 Nov 2012

Beats estimates. FR’s 3Q12 net profit of USD64m (+27% QoQ, +25% YoY) beat our and consensus expectations, bringing 9M12 net profit to USD164m (+38% YoY). The results were boosted by a higher-than-expected CPO ASP and strong refining margins. We raise our FY12F/ 13F/14F net profit estimates by 12%/10%/11% and our TP goes up to SGD2.27 (+6%), still pegged at 14x FY13F PER. Maintain BUY. We continue to like FR for its long-term value proposition, backed by its strong management, young tree age profile of ~8 years, unplanted landbank of ~140,000-150,000ha and low cost of production. Valuations are undemanding at just 12.8x FY13 earnings.

Upstream and midstream outperformed. FR posted a laudable QoQ and YoY performance in 3Q12 on (i) strong FFB (nucleus) production of 0.57m tonnes (+33% QoQ, +12% YoY) which offset lower CPO ASP of USD869/t (-6% QoQ, -10% YoY), and (ii) stronger-than-expected EBITDA refining margins of USD270/t (+270% QoQ, +12% YoY). Despite lower QoQ/YoY realised CPO ASP in 3Q12, it still surpassed Indonesia’s benchmark (net) price of USD787/t, which we gathered was due to some locked-in forward and future sales (for 2H12 output) when CPO price was above MYR3,000/t.

Weak CPO ASP to weigh on 4Q12 earnings. FR’s 9M12 FFB (nucleus) production was a robust 1.41m tonnes (+15% YoY), even beating our expectation for a full-year growth of 12% YoY. We understand that its FFB production will peak in 4Q this year (+13% YoY), albeit relatively flattish QoQ. Nonetheless, the current weak CPO price of ~MYR2,300/t is likely to drag down 4Q12 earnings.

Raise forecasts. We raise our FY12F-14F net profit forecasts on (i) higher FFB output growth of 15% (vs 12%) for FY12 while maintaining FY13F-14F growth at ~9% pa, (ii) lowering FY12’s CPO ASP from MYR3,150/t to MYR3,050/t (unique to FR for it enjoys some locked-in sales for CPO in 2H12), (iii) lowering group tax rates of 23% (from 25%) as we understand it has successfully instituted sustainable tax savings strategy, (iv) raising 2012’s refining contribution on higher EBITDA margins (+USD12/t to USD131/t), and (v) lowering interest expenses.