Highest final dividend since listing
? Final core net profit grew 43% yoy to US$143m, above our expectation.
? We project FY22F core net profit to grow 46%, driven by higher CPO prices.
? We raise our TP to S$2.12, as we lift our earnings forecasts to reflect higher CPO price assumptions. Reiterate Add.
Final results 4% above; declares highest final dividend since listing
First Resources (FR) posted a 43% yoy rise in FY21 core net profit (excluding one-off gain/loss) of US$143m due to higher plantation and refining profits. Final core net profit was 4% above our forecast but was in line with consensus. The better-than-expected earnings were due to higher downstream earnings. FR’s 2H21 core net profit slightly more than doubled to US$120m due to higher palm product prices achieved as well as higher refining margins. The group proposed a final dividend of S$0.05 per share (3% dividend yield), which brings full year dividend to S$0.0635. This represents a 50% payout from its underlying net profit and the highest final dividend since listing.
FR couldn’t fully enjoy the strong CPO prices in FY21
FR achieved an average CPO price of US$573 per tonne for FY21 (+6% yoy), which was 51% below that of the average Indonesia CPO price (fob) of US$1,179 per tonne. This was due mainly to forward sales locked in by FR in late-2020. On top of this, FR was exposed to higher export tax and the sharply higher palm oil export levy structure in Indonesia introduced in Dec 20. FFB output from its nucleus estates grew 1% in FY21, which was slightly better than expectations. How ever, cost of production per tonne of CPO grew 13% to US$250 per tonne due to higher road maintenance costs. FR is guiding for 0-5% FFB output growth and cost of production of US$280 per tonne in 2022F due to higher fertiliser costs. The group revealed that global vegetable oil supplies remain tight due to weather influences, labour shortages at Malaysian oil palm plantations and supply disruptions from Indonesia’s Domestic Market Obligation (DMO) policy enforcing palm oil exporters to sell 20% of their export volumes domestically at a stipulated price (Rp9,300/kg or US$654/tonne for CPO).
Reiterate Add with a higher TP of S$2.12 per share
We raise our FY22-23 net profit forecasts by 21-50% to reflect higher CPO price assumptions and downstream margins. We expect FR to post a 46% jump in its FY22F net profit, driven mainly by higher CPO price achievement of US$757 per tonne (after export tax and levy). We estimate every US$25/tonne net change in our CPO price assumption will change our net profit forecast by US$13m or 6%. Reiterate Add with a higher TP of S$2.12, based on average P/E of 16x (historical 3-year average) to reflect our higher earnings projections. We continue to rate the stock an Add due to its attractive valuations (FY22 P/E of 10x), strong balance sheet (net debt of 0.02x) and appealing dividend yield of 4.9% for FY22F. Re-rating catalysts include better-than-expected CPO prices; downside risks include a sharp fall in CPO prices.