<Result Analysis> Start strong in 2022
- Earnings recovered from low base last year on strong CPO selling price
- Unhedged sales volume means FR could enjoy this year strong CPO price better than last year
- Maintain BUY with TP of S$2.50
What’s new
- 1Q22 earnings reached US$73.6m (+736.4% y-o-y, +11.2% q-o-q) beating our expectations. FR’s stronger than expected earnings performance was driven by higher CPO selling prices, since FR did not hedge its CPO sales volume in 1Q22. On top of higher selling prices, FR also weathered the fertilizer cost escalation and Indonesia regulatory changes on CPO export very well. 1Q22 earnings account for 38% of our FY22 earnings forecast of US$194m (+22.2% y-o-y).
- Decent top line performance. 1Q22 top line reached US$303.5m (+54.1% y-o-y , -0.6% q-o-q) , despite the decline on CPO sales and production volume. CPO production reached 192.6k MT (-9.4% y-o-y, -9.3% q-o-q) , in line with the total harvested fruits of 752.3k MT (-5.6% y-o-y, -9.7% q-o-q). We observed the production downtrend continued in 1Q22 among Indonesia palm oil companies. FR’s Fresh Fruits Bunches (FFB) yield reached 3.8MT/ha , lower than FY21 average yield level of 4.3MT/ha.
Our view
- We retain our earnings forecast, anticipating lower selling price for domestic CPO sales volume in 2Q22 onward. We believe FR could weather Indonesia temporary export ban in May onward. We believe the export ban will be temporary and it won’t disrupt FR’s export operation , meanwhile the lower production trend in 1Q22 was acceptable due to seasonal factor , as we observed similar trend among other Indonesia palm oil companies on stronger than usual output in 1H21 last year.
- Maintain BUY with TP of S$2.50. We like FR high productivity performance which help FR to maximize profit amid rising CPO price trend despite higher fertilizing cost. FR is still trading at FY22 PE of 12.3x , below its five years average PE multiple of 15x. We maintian our BUY rating with DCF-based TP of S$2.50.