Analysts have had mixed reactions to First Resources’ announcement of its 1HFY2021 ended June results on August 13 which saw earnings of US$32.6 million ($44.3 million), below consensus estimates.
See: First Resources 1H21 earnings falls 16.7% y-o-y to US$32.6 mil on higher export taxes
UOB Kay Hian has downgraded its rating to “hold” with a lower target price of $1.40 from $1.50 previously. Maybank Kim Eng has kept its “buy” call but with a lower target price of $1.81, down from $1.88 previously.
Meanwhile, RHB kept its “buy” rating and target price of $1.50 unchanged.
All three brokerages noted that First Resources’ lower earnings was mainly driven by lower average selling price (ASP) arising from earlier committed sales that were priced before factoring the higher levy that took effect in December 2020.
Nonetheless, analysts expect a much stronger 2HFY2021 performance from the company, driven by higher ASP reflective of current higher crude palm oil (CPO) prices as well as favourable revision in the export tax structure that came into effect on July 2.
UOB Kay Hian and Maybank Kim Eng also point out that First Resources has an inventory build-up of some 20,000 tonnes as at June due to some delayed shipments and deliveries, which may translate to higher sales in 2HFY2021.
UOB Kay Hian analysts Jacquelyn Yow Hui Li and Leow Huey Chen highlight that First Resources’ 1HFY2021 earnings accounted for only around 15% of their full-year estimate, coming in below expectations.
While the analysts expect First Resources’ strong downstream performance to carry into the 2HFY2021, they point out that the company’s fertiliser application was behind schedule in the first half of the year, accounting for less than 50% of its full-year target due to the high rainfall at the start of the year.
To that end, Yow and Leow have tweaked their earnings estimates for FY2021 and FY2022 down by 14.3% and 4.5% respectively to account for higher fertiliser cost, though this will be partially offset by better downstream margins.
Maybank Kim Eng analyst Ong Chee Ting considers the “slow start” for First Resources’ earnings within his expectations.
He maintains his “buy” call for the company in view of the better performance expected for the second half of the year driven by higher output and CPO prices. “Following our industry-wide CPO price upgrade, we have raised our FY2021-2023 EPS by 6%/4%/4% respectively,” he remarks.
His has rolled forward his valuations to FY2022. His revised target price of $1.81 is based on 14 times P/E which is pegged at one standard deviation below its five-year mean to reflect slowing growth prospects.
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RHB’s Singapore research team believes investors should look past First Resources 1HFY2021 to the better performance in the second half. “We make no changes to our forecasts. We believe 2H2021 will be the much stronger half given the prevailing higher prices,” the team remarks.
As at 12.09pm, shares in First Resources are trading up 2 cents or 1.42% higher at $1.43.
Photo: Bloomberg
