13 August 2013

First Resources 1H 2013 Result Summary - Aug 2013

Singapore,  13 August 2013  – First Resources Limited (“First Resources” or the “Group”),  today   reported a good set of results for the six months ended 30 June 2013 (“1H2013”) in spite of weaker   palm oil prices.   The Group posted a net profit attributable to shareholders of US$101.3 million, despite a decline in   sales of 7.3% to  US$294.3 million for 1H2013. Group EBITDA  increased marginally by 3.5% to   US$156.8 million in 1H2013.   First Resources’ financial position as at 30 June 2013 remained strong, evidenced by a low leverage   ratio (net debt over equity) of 0.2 times and healthy cash and bank balances of US$277.3 million.

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.

You may refer to presentation document from SGX for better reading.

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