SINGAPORE (Nov 15): RHB is maintaining its “neutral” call on First Resources with a target price of $2.13, based on an unchanged FY18F P/E multiple of 13 times, in line with its five-year historical average. This implies an equity value per hectare (EV/ha) of US$13,500 ($18,352), which is in line with that of its peers who are trading in the US$10,000-15,000/ha range.
In a Wednesday report, RHB’s research team notes that First Resources has lowered its guidance for annual fresh fruit bunches (FFB) growth to 10-15% from 15% previously, despite recording a 27% y-o-y increase in 1H.
See: First Resources' 3Q earnings down 11% to $43.4 mil on lower revenue
As this implies that the peak quarter would still be in 4Q with production anticipated to be slightly higher q-o-q, the research house is leaving its FFB growth forecasts intact at 17.4% for FY17.
RHB is also maintaining its 7-10% y-o-y FFB growth projects for FY18-19 respectively, on the back of an additional 18,000 of new areas coming into maturity in FY18, although it believes this could be levelled by the year-end as the group has yet to complete its fertiliser application.
Cost assumptions therefore remain at US$220-230/tonne for FY17, in line with management guidance.
“Going into FY18, new areas coming into maturity would help to support earnings and FFB growth – although this would be slightly offset by higher unit costs, as minimum wages and fertiliser prices are on the rise,” says RHB.
Further noting narrowing downstream division margins and positive margins recorded from its biodiesel allocations, the research house believes First Resources’ extensive exposure to Riau at 67% puts it at risk in the face of weak weather-led productivity, while valuations look fair at current levels.
As at 11am, shares in First Resources are trading 1 cent higher at $1.94, or 10.8 times FY18 recurring earnings.
