Commenting on the results, Mr. Ciliandra Fangiono, CEO of First Resources said, "Notwithstanding a more challenging operating environment with softer palm oil prices, we are pleased to be able to maintain our overall performance, supported by realisation of some forward sales during the period. With our healthy set of results, First Resources has declared an interim dividend of 1.25 Singapore cents per share.”
The production of fresh fruit bunches (“FFB”) was impacted by seasonality and biological slowdown of palm trees in 1H2013, resulting in a marginal decline of 0.5% in the Group’s FFB production volume. FFB yield for the period declined to 7.7 tonnes per hectare from 10.0 tonnes per hectare in 1H2012, largely due to the combined dilutive effect of having a higher percentage of young trees, which have not reached prime production ages, and lower yields from plantations that were recently acquired.
Production is expected to improve in the second half of the year, in line with the traditional production up cycle that usually takes place in the third and fourth quarters. The Group’s production growth over the forthcoming years will also be enhanced by continual yields improvements in newly acquired assets as a result of our rehabilitation programme
Looking ahead, Mr Fangiono said, “Despite current weakness in the global economy and increasing global edible oil supplies, the Group remains positive on the longer term outlook of the palm oil industry, which is supported by underlying demand growth from top consuming markets such as India, China and Indonesia. Recent weakness in the Indonesian Rupiah relative to the US Dollar is expected to benefit the Group as our revenue is mainly denominated in US Dollar while a substantial portion of our cost is denominated in Indonesian Rupiah. Furthermore, developments in the fertiliser industry may bring about favourable purchase prices for fertiliser users in the future.”
In keeping with its five-year strategy of organic growth, the Group will continue to focus on expanding its plantation footprint and milling capacity. In 1H2013, the Group added 6,755 hectares of new oil palms, increasing its total planted area under management to 161,792 hectares, which includes the plantations acquired in the first quarter 2013.
In June 2013, the Group commissioned its first palm kernel crushing plant with an annual capacity of 105,000 tonnes. This has expanded the Group’s product offering and enabled it to extend its products to a more diversified group of customers. The Group is also on track with the construction of its new refinery located at its integrated processing complex in Dumai, Riau, which is expected to be operational by the fourth quarter of this year.
Below is the snapshot captured from the quarterly report:
Simple Financial Ratio Analysis:
Annualized EPS = 12.78 US cent
Annualized PE = 11.05 X
PB = S$1.765 / S$0.90 = 1.96 X
In my humble opinion, I think that First Resources may experience a drop in Revenue compared to last year as the CPO price dropped and I am not sure how long the management can hedge against the dropping price of CPO via forward sales. Nonetheless, I am glad that the company can still manage to maintain healthy net profit margin and debt level. Nonetheless, the Asset Turnover Ratio may remain at lower level as the PPE & biological assets acquired in the faster pace compared to the revenue growth. Given the PB ratio range 1.50 X to 2.50 X, I believe First Resources is now in the reasonable lower price range. I will consider it only if it can drop for another 10% - 20% further or we can see a reverse trend in the CPO price in near future.
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