2Q earnings likely hit by palm oil export ban
? 1Q22 core net profit grew 739% yoy to US$73.6m, above our expectation.
? We project weaker 2Q22F earnings as export ban may lead to lower sales.
? We lift our earnings forecasts but downgrade our call to Hold from Add as its
share price (+38% YTD) has reached our TP.
1QFY22 results above; highest 1Q net profit since listing
First Resources (FR) posted a 739% yoy jump in 1Q22 net profit of US$73.6m, thanks to
higher CPO price achieved. Based on our record, this represents its highest quarterly net
profit since its listing. 1Q22 net profit was above our expectation, at 35% of our and 31%
of Bloomberg consensus full-year forecasts, due to higher-than-expected CPO prices. In
1Q22, FR posted a 54% rise in revenue despite a 9.4% decline in CPO output and a net
inventory build-up of 31,000 tonnes during the quarter. We deduced that the average CPO
price achieved was likely 69.5% higher yoy in 1Q22, more robust than the 49% rise in 1Q22
average CPO price in Belawan to US$1,586/tonne, as the group has used up significantly
higher-than-normal forward sales locked in at end-2020 for its CPO sales in 1H21. Other
notable takeaways are its 1Q22 FFB output from nucleus estates fell 7.8% yoy due to high
production base in 1Q21. FR maintained its guidance for 0-5% FFB output growth and rise
in cost of production to US$270-290/tonne in 2022F from US$250/ tonne in 2021 due to
higher fertiliser costs. FR said its 1Q22 ASP for CPO was impacted by Indonesia’s
Domestic Market Obligation (DMO) policy enforcing palm oil exporters to sell 20-30% of
their export volumes domestically at a stipulated price (Rp9,300/kg or US$654/tonne for
CPO) from 27 Jan to 18 Mar 22. FR said its fertiliser application in 1Q22 was behind target.
Temporary export ban likely to result in weaker 2Q earnings
We project weaker qoq earnings in 2Q22F for FR as we expect lower sales volumes and
higher operating costs. FR said Indonesia’s 28 Apr move to imposed a temporary export
ban on crude palm oil, RBD palm oil, RBD olein and used cooking oil disrupted its ability
to export c.75% of its refined palm products. The group sells around 25% of its palm
products locally as biodiesel. FR has reduced its purchase of third-party FFBs (12% of total
FFB processed in FY21) to reserve storage capacity for its own and plasma estates. Its
CPO sales in 2Q22F are likely to be affected due to potential port congestion when the
export ban is lifted. The export ban has caused CPO prices in Indonesia to fall 15% since
22 Apr (announcement of export ban) to Rp13,824/kg on 12 May; this is likely to hurt the
ASPs achieved by CPO producers in 2Q. We raise our FY22-24F net profit forecasts by
up to 14% to reflect higher CPO price assumptions, lower effective tax rate, higher costs
and lower downstream margins. We expect FR to post a 66% jump in its FY22F net profit,
driven mainly by higher CPO price achievement. We trim our TP by 3Scts to S$2.10, still
based on 2023F P/E of 16x (historical 3-year average). As the stock has appreciated 38%
YTD and there is downside risk to its earnings if Indonesia’s export ban lasts more than
one month, we downgrade our call to a Hold. We see support from its 5% FY22F div yield.
Key upside risks are stronger-than-expected CPO price and higher downstream margin.