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The Good And Bad That Investors Should Know About First Resources Ltd’s Latest Earnings Update

Lawrence Nga

On 9 November 2018, First Resources Ltd (SGX: EB5) released its 2018 third quarter earnings update. As a quick background for context, First Resources is an integrated palm oil producer, managing more than 210,000 hectares of oil palm plantations across the Riau, East Kalimantan and West Kalimantan provinces of Indonesia. The company organizes its business into two segments: Plantation and Palm Oil Mills; and Refinery and Processing.

In this article, I want to look at the positive as well as negative takeaways from First Resources’ latest results.

The positives

Firstly, First Resources’ revenue and net profit attributable to shareholders for 2018’s third quarter grew significantly compared to a year ago. The former was up by 24.7% to US$171.4 million while the latter climbed by 22.2% to US$39.0 million.

Secondly, the company’s operational metrics came in stronger in the reporting quarter, with fresh fruit bunches (FFB) harvested up 18.1% year-on-year to 982,653 tonnes; the FFB yield climbing from 4.8 tonnes per hectare a year ago to 5.1 tonnes per hectare; and the CPO (crude palm oil) extraction rate stepping up from 22.0% in 2017’s third quarter to 23.0%.

Thirdly, both the Plantation and Palm Oil Mills, as well as Refinery and Processing segments grew their revenues in the reporting quarter. The former’s revenue was up by 14.2% to US$148.4 million while the latter’s revenue jumped by 36.3% to US$ 164.7 million.

The negatives

Firstly, First Resources’ operating cash flow for the first nine months of 2018 was US$98.8 million, down 40% from US$164.8 million a year ago as a result of negative working capital movements.

Secondly, the company’s net debt increased from US$217.4 million as of 31 December 2017 to US$263.2 million as of 30 September 2018, leading to the net gearing ratio (net debt over total equity) rising from 0.21 to 0.28 over the same period.

Thirdly, First Resources’ gross profit margin for 2018’s third quarter declined from 51.9% a year ago to 48.7%. Similarly, its EBITDA (earnings before interest, taxes, depreciation, and amortisation) margin fell from 50.3% to 44.6%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn't own shares in any companies mentioned.