SINGAPORE (Feb 28): CIMB Research is maintaining its “add” recommendation on First Resources at an unchanged target price of $2.32 following the release of its financial statement 4Q16/FY16, where final core earnings were above the research house’s and consensus estimates.
In a Monday report, analyst Ivy Ng explains that CIMB remains positive on First Resources due to its estates’ young age profiles, where 50% of its planted estates are below seven years old. Furthermore, the group is expecting production to strengthen in 2017 due to mature areas and yield recovery.
The Indonesia-based oil palm plantation company on Monday declared FY16 core net profit of US$115.5 million ($162.1 million) at 133% of CIMB’s full-year forecast, due mainly to better-than-expected FFB output and crude palm oil (CPO) selling prices.
Core net profit for the quarter rose 177% y-o-y to US$48.1 million.
Its plantation division was a key earnings driver for the group in FY16, she notes, given how fresh fruit bunches (FFB) yields surged during the fourth quarter ended Dec 31 as the impact brought about by El Nino began to wane.
As such, the higher revenue from First Resource’s plantation segment more than offset the losses recorded at its refinery and processing divisions.
The final dividend of 2.4 cents per share, however, was below what CIMB forecasted.
Key risks to CIMB’s view are lower CPO prices and production, while stronger-than-expected earnings would serve as a key re-rating catalyst.
“Depreciation charges rose 87% to US$57 million in FY16 due to the adoption of IFRS 41 and 16. The group’s unit cash cost of production was higher at US$215 per tonne compared to US$204 per tonne in FY15 due to weaker output. However, unit EBITDA per tonne of nucleus CPO sold improved from US$371 to US$527 per tonne in FY16 due to better selling prices for its palm products,” observes Ng.
As at 3.55pm, shares of First Resources are trading 2 cents higher at $1.89.
