CGS-CIMB analysts Research analysts Ivy Ng Lee Fang and Nagulan Ravi have raised their target price for First Resources to $1.76 from $1.67 previously, as the company is poised for stronger 4Q21F earnings.
First Resources reported a 5.6% y-o-y rise in 9M21 underlying net profit — thanks to a strong 3Q21 underlying net profit of US$52.8 million, the analysts note. The 3Q21 net profit accounted for 64% of 9M21 underlying profit, as only a low proportion of the group’s sales volumes were impacted by the forward sales contracts it locked in at lower crude palm oil (CPO) prices earlier this year.
On top of this, First Resources also benefited from a lower export levy rate starting 1 Jul 2021.
See: First Resources reports 3Q21 underlying net profit growth of 44.9% on higher ASP and sales volume
“The 9M21 net profit formed 72% of our and 56% of Bloomberg consensus full-year forecasts. Assuming flattish q-o-q underlying net profit in 4Q21F, we deem 9M21 net profit to be above our expectation due to higher CPO prices, but below Bloomberg consensus’s full-year estimates,” the analysts add.
The fresh fruit bunches (FFB) output from the plantation company’s nucleus estates fell 3.9% y-o-y, but rose 10.9% q-o-q in 3Q21. First Resources revealed that 4Q production will likely be weaker q-o-q, as its output may have peaked in 3Q due to change in its seasonal production pattern and heavier-than-usual rainfall experienced at its estates since August.
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“The company now expects to achieve 2021 production at the lower end of its target range of 0% to 5%, versus 9M21’s 4%, below our output growth assumption of 5%. The weaker 3Q21 production was more than offset by higher CPO prices and a net inventory drawdown of 48,000 tonnes in 3Q21,” say the analysts.
First Resources did not reveal its average CPO price achieved in 3Q21 but Ng and Ravi deduced that the figure was likely in the range of US$700 to US$750 per tonne net of export levy, versus 1H21 average selling price of US$459 per tonne.
The higher CPO price achieved in 3Q21 was partly due to lower export levy and tax of US$316 per tonne in 3Q21 versus US$367 per tonne in 1H21, the analysts highlight.
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As First Resources has not hedged forward a significant portion of its 2H21 production volumes, the analysts expect it to deliver a strong 4Q21. “First Resources sees a positive CPO price outlook given the tight supply conditions,” say Ng and Ravi.
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They raise their FY21 to FY22F earnings per share forecasts by 13% to 24% to reflect higher CPO prices, lower FFB output and higher fertiliser costs. “We project First Resources to report net profit of US$54.4 million in 4Q21F versus US$52.8 million in 3Q21, driven by better CPO prices.”
As at 10.54am, shares in First Resources are trading flat at $1.51.