SINGAPORE (May 27): While First Resources reported earnings (or net profit) of US$22.2 million (S$31.4 million), an 80.9% surge y-o-y for 1Q20, the results still fell short of expectations, according to CGS-CIMB, DBS Group Research, Maybank Kim Eng, and RHB.

See also: First Resources posts 80.9% surge in earnings to $31.4 mil for 1Q20

All brokerages agree that the palm oil producer’s net profit for 1Q20 came up to a fraction of their full-year estimates at 18% for CGS-CIMB, 12% below street level for DBS Group Research, 19%/17% for Maybank Kim Eng, and 20% for RHB.

As such, CGS-CIMB analysts Ivy Ng and Nagulan Ravi have slashed First Resources’ FY20 earnings estimates by 16% to reflect lower fresh fruit bunch (FFB) yields, and cut FY21-22 earnings estimates by 7% each to reflect lower FFB assumptions. Ng and Ravi have raised the effective tax rate to reflect deferred tax.

DBS analyst William Simadiputra and DBS’s Singapore research team have lowered their FY20/21 earnings estimates by 16%/12% on lower-than-expected external fruits purchase for 2Q20, and weaker fruit output from surrounding estates in 3Q20.

“We forecast nucleus fruits will form the backbone of performance from 2Q20 onwards, nucleus fruits have better extraction rates and margins vs. external fruits,” they say.

Conversely, Maybank Kim Eng analyst Ong Chee Ting is keeping her earnings per share forecasts unchanged on lack of “available information to do a detailed analysis”.

RHB’s Singapore research team has lowered its FY20-22 forecasts by 9 to 11% on lower FFB growth and higher unit costs. The team has also adjusted its FFB growth assumptions to 0.4% from 2.5% for FY20, and it is keeping its 6-7% growth forecast for FY21-22.

CGS-CIMB, DBS, and Maybank are reiterating their “add” or “buy” calls on First Resources. CGS-CIMB’s Ng and Ravi have lowered their target price for the stock to $1.80, representing an upside of 40.6%. DBS’s Simadiputra and team have lowered their target price to $1.70, representing an upside of 33%. Maybank’s Ong has maintained her target price of $1.85, which represents an upside of 46%.

RHB’s team, on the other hand, has downgraded the stock to “neutral” from “buy”, with a target price of $1.25, representing a downside of 3.8%.

“First Resource’s 1Q20 results disappointed on lower FFB output and sales volumes. While production should improve in 2Q20, this will be offset by lower prevailing CPO prices. As the share price has hit our target, we downgrade our recommendation on the stock,” says the team.

First Resources shares closed 2 cents up, or 1.6% higher, at $1.31 on Wednesday.