Analysts at UOB Kay Hian and RHB Group Research have trimmed their target prices on First Resources EB5 to $1.55 and $1.60 respectively after the planter announced its 2HFY2022 results.
In their March 2 note, RHB analysts have maintained “neutral” on the stock, pointing out that First Resources’ FY2022 results came largely within expectations.
The company’s nucleus fresh fruit bunches (FFB) production grew 2.2% y-o-y in FY2022, in line with RHB’s growth projections and the company’s guidance. Its high inventory build up was also disposed of in 4QFY2022.
Fertiliser application, however, fell short at only 50% due to bad weather, resulting in lower unit costs. For 2023, First Resources is guiding for unit costs to rise to US$280-US$300 per tonne, 2%-9% higher y-o-y.
Additionally, First Resources’ downstream margins turned negative in 2HFY2022, recording an ebitda margin of -0.54% from 11.5% in 1HFY2022. This was mainly due to negative refining margin as the tax levy holiday ended in mid-Nov 2022, which disrupted sales volumes while domestic feedstock prices rose.
Biodiesel margin also shrank during the period due to the sharp drop in by-product crude glycerine prices, the analysts highlight. “Going forward, feedstock prices will likely remain high, which could continue to pressure refining margin. However, crude glycerine prices have recovered slightly which should help biodiesel margin,” they add.
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UOBKH analysts Jacquelyn Yow Hui Li and Leow Huey Chuen have downgraded First Resources to “hold”, expecting 2023 earnings to be lower y-o-y. This is on the back of lower crude palm oil (CPO) prices, high cost of production and the lower downstream margin.
Currently, Indonesia’s local CPO selling prices remain high at 12,900 rupiah per kilogram due to the current tight production. The analysts expect CPO prices to weaken in the second half of the year once the market realises there may be a “sudden boom” in production brought about by the impact of La Nina.
Yow and Leow have revised down their earnings estimate by 10%-15% for 2023-2024. The analysts’ net profit forecasts for 2023-2025 are US$207 million, US$213 million and US$215 million respectively.
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Meanwhile, RHB analysts have lowered their FY2022-FY2024 earnings estimate by 2%-10%.
As at 3.20pm, shares in First Resources are trading 2 cents lower or 1.26% down at $1.57.
