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Analysts raise First Resources TPs on higher CPO price assumptions

Analysts at RHB, CGS-CIMB and Maybank have raised their target prices for First Resources to $2, $2.12 and $1.88 respectively.

Analysts at RHB Group Research, CGS-CIMB Research and Maybank have raised their target prices for First Resources to $2, $2.12 and $1.88 respectively on the back of higher crude palm oil (CPO) price assumptions.

Maybank Investment Bank analyst Ong Chee Ting who has a “hold” call on First Resources expects the company to deliver 37% y-o-y growth in FY22 core PATMI, following Maybank's industry-wide CPO average selling price (ASP) revisions to RM4,100 per tonne from the previous RM3,200 per tonne.

CGS-CIMB’s Ivy Ng Lee Fang and Nagulan Ravi have kept their “add” call on First Resources, raising their FY22-FY23 net profit forecasts by 21%-50% to reflect higher CPO price assumptions and downstream margins.

“We expect FR to post a 46% jump in its FY22F net profit, driven mainly by higher CPO price achievement of US$757 per tonne (after export tax and levy). We estimate every US$25 per tonne net change in our CPO price assumption will change our net profit forecast by US$13 million or 6%,” they add.

Meanwhile, RHB analysts which have maintained their "neutral" call raise their FY22-FY23 forecasts by 21%-44% after imputing higher CPO prices of RM4,300 per tonne for 2022 and RM3,600 per tonne for 2023.

In his note, Ong says that First Resources’ core PATMI for FY21 at US$149 million met 107% of Maybank’s full-year estimates. The company's 2H21 revenue rose 62% y-o-y to US$619 million, mainly driven by higher CPO and palm kernel ASPs as well as a net drawdown of inventory of 50,000 tonnes, which more than offset the lower fresh fruit bunches (FFB) nucleus output.

First Resources’ cost of production in FY21 was US$250 per tonne, 13% higher y-o-y due to higher fertiliser cost even though it has only completed 80% of its fetiliser requirements, says Ong.

“With fertiliser and higher wage pressures in FY22E, First Resources is guiding for its unit cost to go up to US$270-US$290 per tonne. As for FFB output, First Resources is guiding for 0%-5% y-o-y growth for FY22E. Without providing any details, First Resources guides that it has made some forward sales in FY22E but significantly lower in volume than FY21,” he adds.

RHB analysts highlight that First Resources should see stronger FY22 results given the higher CPO price assumptions, albeit slightly offset by higher fertiliser costs. They add that the company is fairly valued, trading at 8.7x 2022F P/E in line with its peer range of 8x-10x.

CGS-CIMB analysts also highlight First Resources attractive valuations, on top of a strong balance sheet and appealing dividend yield of 4.9% for FY22F.

RHB’s target price of $2 is based on unchanged 10x 2022 P/E, which includes an 8% environmental, social and governance (ESG) discount given its ESG score of 2.6.

As at 11.02am, shares in First Resources are trading 4 cents higher or 2.17% up at $1.88.

Photo: Bloomberg



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