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Analysts mixed on First Resources as strong earnings pick-up pulled down by downstream unit

Khairani Afifi Noordin
Khairani Afifi Noordin • 2 min read
Analysts mixed on First Resources as strong earnings pick-up pulled down by downstream unit
FR's refining margins will only turn positive if prices move up and demand improves, the analyst highlights.
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Analysts at RHB Bank Singapore, Maybank Securities and UOB Kay Hian (UOBKH) are maintaining their “neutral”, “hold” and “buy” calls on First Resources (FR) following the planter’s 1QFY2024 ended March results release.

In their May 16 report, RHB analysts note that FR recorded a 87% y-o-y surge in net profit in 1QFY2024 to US$36.1 million, which is below their and consensus expectations. This is likely due to higher-than-expected losses incurred by FR’s downstream segment.

For 1QFY2024, FR’s refining margins remained in the negative. The company has not seen any marked improvements given the still-weak demand from its destination markets, while competition from other crude palm oil (CPO) producers is heating up, RHB analysts point out. 

“Going forward, management highlighted that refining margins will only turn positive if prices move up and demand improves,” they add.

The refining margins were mitigated by stable biodiesel margins, Maybank’s Ong Chee Ting highlights. Due to the negative refining margins, FR were focused on selling more CPO — as such, 1QFY2024’s utilisation rate for refinery was low at just 20%-30%, while biodiesel was much higher at 80%-90%, he further points out.

Moving forward, UOBKH analysts Jacquelyn Yow Hui Li and Leow Huey Chuen expect FR to post higher earnings q-o-q and y-o-y for 2QFY2024. This is underpinned by expectations of increased sales volume, sustained high CPO prices as well as narrower loss from downstream operations.

See also: UOBKH lowers MINT’s TP to $2.93 after its data centre JV’s all-in cost of debt to increase after January expiry

Maybank’s Ong, on the other hand, expects 2QFY2024 earnings to be relatively muted as inventory levels have normalised as at end-March. “Still, we expect stronger earnings to follow in 2HFY2024 on stronger output and lower fertiliser cost,” he adds.

RHB and Maybank’s target price for FR is $1.45, while UOBKH’s is $1.65.

As at 10.12am, shares in FR are trading at an unchanged $1.42. 

 

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