Weathering Indonesia CPO Export Ban
- 2Q22 core net profit reached US$64m (+202.3% y-o-y, -12.5% q-o-q) on decent selling prices, despite sales volume impacted by Indonesia export ban
- FR will distribute interim dividend of Scts2.5/share
- Maintain BUY with TP of S$2.50
What’s new
- 2Q22 core net profit reached US$64 (+202.3% y-o-y, -12.5% q-o-q) above our estimate on decent selling prices. 2Q22 core net profit rebounded from the low base last year. Last year’s earnings were impacted by hedged sales volume. Meanwhile the lower earnings on a q-o-q basis likely reflected lower sales volume due to Indonesia export ban. 1H22 core net profit reached 62% of our FY22 earnings estimate of US$194m (+20.5% y-o-y). FR will distribute interim dividend of Scts2.50/share, 21% dividend payout ratio of its 1H22 core net profit.
- Nucleus fruits yield improved q-o-q. FR’s nucleus fruits yield improved to 4.4MT/ha in 2Q22 vs. 1Q22’s 3.7 MT/ha. FR’s own harvested fruits improved to 745k MT (+3.5% y-o-y, +15.5% q-o-q). Meanwhile fruits from external farmers expanded to 132k MT (+24.4% y-o-y, +22.9% q-o-q) and FR’s total processed fruits reached 877k MT (+6.2% y-o-y, +16.5% q-o-q).
- CPO extraction rate impacted by external fruits; meanwhile Indo’s export ban affected sales volume performance in 1H22. FR’s CPO extraction rate of 22.4% in 2Q22 was lower than last year’s level of 23.1% mainly on higher processed external fruits. The extraction rate resulted in CPO production volumes of 207k MT (-3.9% y-o-y, +7.7% q-o-q). 1H22 CPO sales volumes reached 344k MT (-24.8% y-o-y), affected by the 131k MT of inventory buildup. We think this could be affected by the Indonesia export ban in May-June 2022, though FR did not disclose its quarterly sales volume.
Our view
- FR weathered Indonesia export ban well in 2Q22. First Resources (FR) weathered Indonesia export ban very well in 2Q22. Coupled with decent CPO price, FR could maintain quite strong earnings performance.
- Maintaining our earnings forecast. We maintain our earnings forecast for now and our current forecast implies FR will only need to achieve US$28 of core net profit in 3Q22 and 4Q22. Going forward, we think stronger production and sales volume will offset the lower selling price trend. Currently Indonesia domestic CPO price is around US$720 per MT, lower than 1H22’s average price of US$1,015/MT but still within our average domestic CPO price forecast in 2022 of US$850 per MT.
- We have a BUY rating with TP of S$2.50. Investors are pricing in a weaker earnings q-o-q in 3Q22 on weaker CPO price trend and ignoring the potential rebound due to decent soybean oil price. FR is trading at FY22 PE of 8.5x, similar to the level in earlier 2021 level where FR’s earnings were severely hit by hedged CPO sales volume in 1H21.
