Analysts from Maybank Securities and RHB Bank Singapore have lowered their target price for First Resources EB5 , following the group’s FY2023 results ended December, with Maybank downgrading its call from “buy” to “hold”.
First Resources recorded a net profit of US$145.4 million ($195.69 million), a 55.3% decline against FY2022. As a result, Maybank’s Ong Chee Ting has lowered her target price to $1.45 from $1.82 previously, while RHB has kept its “neutral” call and lowered its price to $1.40 from $1.45 previously.
Ong from Maybank says that First Resource’s full year core patmi missed theirs and street estimates.
These lower y-o-y 2HFY2023 profits were due to larger downstream losses, assets write-down, lower crude palm oil (CPO) average selling price (ASP) of 11% decline, and net inventory build-up of 14,000t (i.e. lower sales), mitigated by higher fresh fruit bunches (FFB) nucleus output (+5% y-o-y).
The second half of 2023’s plantation ebitda contracted -32% y-o-y to US$172 million, in part due to higher-than-expected unit cost of production as First Resources accelerated its fertiliser application, says Ong.
First Resources completed about 90% of its FY2023 fertiliser plan, a step-up from just a third completed in 1HFY2023. As for downstream, FR posted a lbitda of US$17 million in 2HFY2023 (+571% y-o-y) on -4.8% margin (-4.4 percentage points y-o-y) on challenging market environment, the analyst writes.
See also: RHB initiates coverage on CSE Global with ‘buy’ call with TP of 58 cents
With lower fertiliser prices and higher yield, First Resources is guiding for its unit cash to be lower y-o-y for the FY2024. It guides for a 5% y-o-y FFB growth for the FY2024, and has made little-to-no forward sales in the new year.
Ong says there are several risk factors to their earnings estimates, price target and rating for the group.
These include weather anomalies resulting in poorer-than-expected output growth; lower-than-expected CPO price achieved; negative policies imposed by import countries; unfriendly policies imposed by the Indonesian government on upstream or downstream segments; sharply lower crude oil prices which make palm biodiesel demand not viable; and weaker competing oil prices (such as for soybean and rapeseed).
See also: Suntec REIT biggest beneficiary from MAS’s ‘looser’ leverage, ICR rules: OCBC
“We revised down our FY2024/FY2025 core patmi forecasts by 18%/17% mainly to reflect challenging downstream outlook, and higher-than-expected unit cost of output,” Ong says.
On the other hand, the team of analysts at RHB say that First Resources FY2023 results were in line with its and street expectations.
“Going forward while productivity should improve and costs reduce, downstream margins could remain under pressure in 2024,” says the RHB team.
RHB has raised its FFB growth assumptions to 2%-4% for FY2024-FY2025 from 0%-2%, as they note that weather conditions have “somewhat regularised” since February 2024, and the group is expecting weather trends to normalise this year.
RHB has also lowered its downstream margin assumptions, as the group has said that refining margins would only turn positive if prices move up and demand improves. However, biodiesel margins should improve in 2024 on higher glycerine prices, adds the team.
RHB brings its FY2023-FY2025 earnings down slightly by 1%-9%, as the team trims its downstream margin assumptions, but note that its FFB growth assumptions have been raised.
As such, the brokerage’s target price is lowered to $1.40.
As at 10.43am, shares in First Resources are trading 1 cent lower or 0.704% down at $1.41.
