SINGAPORE (May 12): Maybank Kim Eng Research is maintaining its “hold” recommendation on First Resources with an unchanged target price of $1.97 after the palm oil producer on Thursday reported a nine-fold increase in 1Q earnings US$48.5 million ($68.4 million), from US$5.3 million a year ago.
(See also: First Resources posts nine-fold increase in 1Q earnings to US$48.5 mil)
In the research house’s view, the high sales volume reflected in the group’s latest set of results is typically seen only in the second half of the year, and was accomplished after the group capitalised on the crude palm oil (CPO) average selling price (ASP) upsurge in 1Q17 and maximised sales by drawing down about 46,000 metric tonnes of inventories.
Such an opportunity may not recur in the remaining quarters with the recent CPO price correction, says analyst Ong Chee Ting, who nonetheless believes that the “phenomenal output growth” as seen over 1Q17 will taper in the remaining quarters.
Unlike previous financial years, Ong believes the group’s 2017 results have been “pretty much front-loaded onto 1Q17”.
As such, the research house has decided to keep its earnings forecasts for now, with 2017 net CPO ASP forecast unchanged at US$558 per tonne which represents a 5% decline y-o-y.
“At 624,688 MT, 1Q17 output made up 12.6% of our full-year forecast – on track to meet our +22% y-o-y nucleus output growth for 2017. Our output growth is already higher than First Resources’ +15% YoY (group) growth guidance. Furthermore, the high CPO ASPs in 1Q17 have already corrected somewhat in 2Q17 and will continue to remain under pressure in 2H17when the industry’s output peaks,” explains the analyst.
As at 3.37pm, shares of First Resources are up by 0.3% at $1.96.
