RHB Group Research analysts have maintained their “neutral” call on First Resources with a higher target price of $1.75 from $1.50 previously following the company’s 9MFY2022 ended September earnings announcement.
In their Nov 15 report, the analysts note that First Resources’ 9MFY2022 numbers came in strongly above expectations — earnings rose 205.8% y-o-y, representing 92%-94% of RHB’s and consensus’ full year earnings estimates.
This is mainly attributed to the tax levy holiday impact, forward hedging gains, lower-than-expected unit costs, as well as effective tax rate.
Benefitting from the tax levy holiday in 3QFY2022, First Resources recorded additional gain as the forward sales volumes contracted during the high tax period got executed when levies were zeroised. Now that taxes have been reinstated since mid-2022, however, the opposite applies, where losses can be booked instead, the analysts highlight.
“While First Resources does not reveal its forward hedging stance, it did state that it continues to hedge forward, albeit at only two to four weeks ahead,” they add.
First Resources’ 9MFY2022 nucleus fresh fruit bunches (FFB) production rose 2.9% y-o-y, in line with RHB’s 2.7% growth projection and the company’s guidance of 0%-5% for FY2022.
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The company’s 3QFY2022 FFB output saw a strong recovery of 19.7% q-o-q, despite the wetter-than-expected weather. “While the floods have subsided in most parts of First Resources’ Kalimantan estates, the weather is still wetter than usual. As such, it is maintaining its FFB growth guidance for FY2022. We keep our FY2022-FY2023 growth assumptions at 2%-5%,” the analysts say.
First Resources has lowered its FY2022 unit cost guidance to US$250-US$270 per tonne tonne, 5%-8% higher y-o-y. This is due to slower fertiliser application, as it is unlikely to complete its targeted application for this year. RHB understands that fertiliser application is not much more than the 35% applied at end 1HFY2022 due to the wet weather and labour shortages.
RHB raised its earnings forecasts by 8%-23% for FY2022-FY2024, taking into account the impact of the tax levy holiday and lower unit costs and effective tax rates.
As at 1.14pm, shares in First Resources are trading 5 cents higher or 3.04% up at $1.69.
