DBS Group Research analyst William Simadiputra has kept his “buy” call for First Resources, citing rising earnings prospects on strong crude palm oil (CPO) price outlook and production volume growth.
In his March 21 report, Simadiputra believes there is room for the share price to further perform this year, as First Resources’ P/E multiple is still below its 5-year average of 15x. To this end, he raises his target price to $2.50 and lifts his earnings forecast for FY2022 by 33% to US$194 million.
The plantation company's CPO yield will continue to perform above its peers in 2022, adds Simadiputra. "First Resources could deliver stronger earnings this year due to its unhedged sales volume amid rising CPO prices. Last year, FR’s earnings performance underperformed its peers due to hedged CPO selling prices and we only saw a meaningful improvement in 4Q21," he says.
In 2022 and 2023, DBS’s CPO benchmark price assumption is US$1,125 per metric tonne while the selling price assumption is US$850 per metric tonne. With this, Simadiputra forecasts First Resources to achieve US$48 million earnings per quarter in 2022.
This is a conservative estimate, he explains, considering that First Resources had booked earnings of US$63 million and US$53 million in 4Q2021 and 3Q2021 respectively.
“Back then, CPO benchmark price had averaged US$1,215 per metric tonne and US$1,064 per metric tonne respectively. Despite the outlook for higher CPO selling prices, we anticipate higher cash cost per ton for nucleus CPO on higher fertiliser cost. However, we believe First Resources can weather rising costs on strong yield performance which will keep the cost per hectare low,” he adds.
As at 12.08pm, shares in First Resources are trading 1 cent higher or 0.47% up at $2.12.
