26 February 2014

First Resources - Record Total 4.5 cents given for FY2013 - FEB 2014

First Resources reported a net profit of US$238.2 million for the 12 months ended 31 December 2013 (“FY2013”) on the back of a 3.8% increase in sales to US$626.5 million. Excluding net gains arising from changes in fair value of the Group’s biological assets, underlying net profit rose 2.7% to US$217.0 million.
The resilient performance was primarily due to higher sales volumes as well as the realisation of some forward sales during the year. EBITDA rose 5.0% to US$338.9 million as compared to US$322.8 million in the preceding year.

The Group’s financial position remained healthy with cash and bank balances of US$272.2 million and a low gearing ratio of 0.21 times as at 31 December 2013.

First Resources proposes a final dividend of 3.25 Singapore cents per share, taking the total FY2013 dividend to 4.50 Singapore cents (2% dividend yield base on S$2.23 closing price), which translates to an annual dividend payout of 26% of underlying net profit. This is 12.5% higher than that of FY2012 and the largest made by the Group since its listing in 2007.
During the year, the Group increased its total planted area under management by 16.5% to 170,596 hectares. With the increase in mature hectarage and contribution from acquired plantations, fresh fruit bunches (“FFB”) production grew 4.5% to 2.3 million tonnes. FFB yield declined to 18.7 tonnes per hectare compared to 23.0 tonnes per hectare a year ago, largely due to biological tree stress and the combined dilutive effect from the newly mature and acquired plantations.

Mr. Ciliandra Fangiono, CEO of First Resources commented, “Despite a more challenging operating environment in FY2013, we are pleased that the Group has been able to achieve steady revenue growth and maintained a healthy profit. In 2014, we will continue to focus on expanding our upstream plantation assets which includes the construction of two CPO mills.”

My Own Analysis
Underlying Net Profit for financial year ended 31 Dec 2013 attributable to owners of the Company was US$217M or about 17.3 SG cents EPS. The PE of the company is now at around 11.8X, which I think is reasonable to the company at this size. However, if we look into the comprehensive income statement, the company suffered from a US$313M comprehensive income losses and it had caused the company NAV to reduce to around 88.0 SG cents despite the net profits reported last year. Large parts of the comprehensive losses attributed to Foreign Currency Translation (due to the depreciating Indonesia Rupiah against US$ and most of the assets are denominated in Indonesia Rupiah) and fair value losses on cash flow hedges as the company used futures / forwards to hedge on the sales made in advance.

We also have seen a drop in gross profit margin (from 63% to 61%) mainly due to:

  • acquisition of new agricultural land which requires company to further improve it 
  • higher cash cost of production

Let's take a look of the production highlights and trends.

Product Highlights. Source: Company

FFB purchased increased 221.6% to 288K tonnes, which accounted to 13% of total of FFB harvested. It shows that the company is in the midst of increasing activities in milling and refinery. Company aimed to be a leading plantation group with integrated operations throughout the value chain by:

  • expands total plant area to 200K ha within 3 years from current 171K ha or average 100K ha per year. 
  • increases number of mills to 14 by 2014 from 12 currently. 
  • integrate processing complex at Bangsal Aceh, Riau (commissioned the new refinery in Dec 2013)
  • expected capex of US$170 million 

Production Trend. Source: Company
Cash flow wise, the company achieved net cash flow from operating of about US$200M which is sufficient to support the company's expected capex of US$170M. I would think that the company could achieve a rather stable cash flow after year 2016 as the net cash flow from operating would be large enough as compared to expected capex later.


  • reducing operating efficiency after acquired more planted area
  • fluctuation of Indonesia Rupiah against US dollar (although I would think this is a good news as the cost was mainly calculated in rupiah while the revenue was calculated in US dollar)
  • fluctuation of crude palm oil price in the market (it hits RM2,700 recently from bottom RM2,000 last year)
  • As the company issued 4.5 cents dividend (about S$71M or US$56M), it may not have sufficient operating cash flow to support both dividend payout and expected capex (in total US$226M). The company would have to think of a way to improve working capital efficiency or net profits. 

In summary, I think First Resources is a good company in expansion stage and with proper corporate finance management. We may accumulate this counter when the CPO price drops significantly due to unforeseen circumstance as I think the company's EPS could increase by at least 30% in 3 years time based on the estimated capex plan and if other variables remain unchanged.

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  1. Hi Jack,

    May I know is the gain arising from changes in fair value of biological assets taxable? As I know it's just a valuation and would be deducted under the operation cash flow statement.

    Since the Rupiah had depreciated a lot against USD, we should expect the gross margin to be improved as the amount is smaller when translated in USD dollar, right?

    Thanks for time.

    1. Hi CT, if you look at underlying profit calculation provided by the company, ya the fair value of biological assets are taxable and that is why they did a reversal of the tax paid to calculate the underlying net profit.

      Yes, for general investors, we would look at the profits first before the comprehensive income, as some of the income was not displayed under income statement but directly reflected on balance sheets.

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