First Resources

UOBKayhian on 9 Dec 2014

FY14F PE (x): 13.2
FY15F PE (x): 12.0
Reiterate BUY for its ability to sustain good productivity yield and keeping production
cost relatively low to stay profitable in a low CPO price environment. First Resources’
(FR) share prices corrected 30% from its 52-week high of S$2.60 on the back of CPO
price weakness and relatively weaker 1H14 earnings vs peers’. The price correction
makes FR one of the cheapest high-growth plantation stocks, at 1-year forward PE of
12x vs peers’ 11-14x. This is a good opportunity to accumulate positions in a wellmanaged
plantation company with good earnings prospects.
Better profitability supports higher PE multiple. During the last CPO price correction in
2008/09, FR traded at the lowest PE of about 3x (-2SD from mean), then recovered and
stabilised at 6-8x PE (-1SD from mean). Given improving profitability, FR’s valuation is
unlikely to go back to its previous trough. Back in 2009 when FR traded at its trough
valuation, its reported EBITDA/CPO tonne was US$328 vs an estimated US$410 for
2014. The higher profitability was largely attributed to better oil yields since then as
more oil palm trees move into prime production age.
Maintain BUY and target price of S$2.80, based on 15x 2016F PE. FR remains one of
our top picks in the plantation sector due to its attractive profile age, cost-efficient
estates and hands-on management. We forecast EPS of 10.4 US cents, 11.5 US cents
and 14.2 US cents for 2014-16 respectively.