Analysts have continued to be positive on the prospects of First Resources following the plantation company’s improved performance in 3Q20 and 9M20.
Maybank Kim Eng believes First Resources will likely report stronger q-o-q earnings in 4Q20 given the recent spike in crude palm oil (CPO) price to above RM3,000 per metric tonne.
It adds that the company 4Q20 earnings may also be lifted by higher downstream margins.
“With [the] present high CPO price, [First Resources]’s 4Q will likely surprise on the upside,” Maybank KE analyst Ong Chee Ting writes in a note dated Nov 15.
RHB reckons that First Resources has the “advantage” against changes in export tax levy structure, which the company expects to be implemented soon.
According to the brokerage, a levy for CPO of US$15 per metric tonne will be charged for every US$25 per metric tonne increase in CPO price above US$600 per metric tonne.
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This compares to the existing levy for CPO of US$5 per metric tonne.
However, the levy for refined products will only rise by US$12 per metric tonne.
As the rise in levy for refining margins would be smaller, downstream margins should widen going forward, says RHB.
The brokerage notes that as First Resources is now channelling all its exports to its refined products, the company would take advantage of the lower tax levy.
Meanwhile, DBS Group Research says the company has consistently achieved above average CPO yield and profitability, leading to double digit return on equity (ROE).
Yet its share price has remained “sideways” despite ascending CPO price, the brokerage notes.
“It deserves to trade at a higher valuation multiple due to the constructive CPO price outlook in 2021,” DBS analysts William Simadiputra and Woon Bing Yong write in a Nov 13 report.
Maybank KE has maintained its “buy” rating for the stock with a higher target price of $1.96 from $1.79 previously.
RHB, too, has kept its “buy” call for the stock with an unchanged target price of $1.45.
Finally, DBS has retained its “buy” recommendation for the stock with an unchanged target price of $1.70.
As at 10.25 am, First Resources was flat at $1.27 with 359,200 shares changed hands.
