SINGAPORE (May 16): First Resources reported a 44% fall in 1Q18 earnings to US$27.7 million ($37 million) and a 40% fall in 1Q18 profit from operations to US$43.3 million.

The weaker bottomline was mainly due to the effects of inventory build-up and lower average selling prices (ASP).

Sales decreased by 30.2% to US$135.6 million in 1Q18, reflecting the combined effects of lower sales volumes and average selling prices.

See: First Resources reported 43% fall in 1Q earnings to US$27.7 mil

Following this announcement, CGS-CIMB Securities is reiterating its “add” call on First Resources with a target price of $2.03.

The group’s crude palm oil (CPO) sales volumes grew 10.3% y-o-y to 181,868 tonnes in 1Q18, lower than its CPO output of 192,193 tonnes for the quarter, partly to the effects of a net inventory build-up of 37,000 tonnes of palm products in 1Q18.

Nonetheless, the group expects a seasonal upswing in production in 2H18.

In a Monday report, analyst Ivy Ng Lee Fang says, “This may weigh on CPO prices though this will be partially offset by the recent rally in crude oil prices and China’s proposed import tariff on US soybean which are seen as supportive of palm oil demand and prices.”

The removal of EU anti-dumping duties on several Indonesian biodiesel players, including First Resources, and supportive domestic biodiesel blending mandate is positive for biodiesel demand prospects as well.

“We project stronger earnings in future quarters driven by better palm products prices and production,” says Ng.

Similarly, Maybank Kim Eng is maintaining its “buy” recommendation on First Resources with a fair value estimate of $2.20.

In a Tuesday report, analyst Ong Chee Ting says, “Earnings will likely be backloaded this year when output peaks seasonally in 2H18. As for 2Q18, bottom line could be moderated by higher withholding tax expense payable.”

The group’s fresh bruit branch (FFB) nucleus output was off to a good start in 1Q18, comparing favourably against favourably against the 20% average recorded for Q1 in the past several years.

“Meanwhile, its 2Q18 earnings are likely to be dragged by higher effective tax rate due to the effects of withholding tax expenses,” says Ong.

As at 1.15pm, shares in First Resources are trading 1 cent higher at $1.57 or 1.81 times FY18 book with a dividend yield of 2.18%.