<Result Analysis> Strong production volumes keep earnings performance in check
- 3Q23 earnings reached US$51m (-55.9% y-o-y, +5.6% q-o-q), ahead our estimate
- CPO production volumes grew by 29.4% q-o-q to 286k MT (+13.5% q-o-q) , contributing to FR’s ability to maintain good profitability performance
- Maintain BUY with TP of S$2.0
What’s new
- 3Q23 earnings were ahead our estimate. 3Q23 earnings reached US$51m (-55.9% y-o-y, +5.6% q-o-q) , in line with our estimate on strong CPO production volumes expansion in 3Q23, despite relatively flat q-o-q CPO selling price trend. 9M23 net profit reached 83% of our FY23F earnings estimate of US$144m (-55.6% y-o-y).
- Topline performed well despite inventory buildup in 3Q23. FR’s 3Q23 revenue reached US$248m (-31.4% y-o-y, -0.9% q-o-q), also in line with our estimates. FR did not disclose its 3Q23 selling price but it should largely be similar to International palm oil price that averaged US$820 per MT (-7% y-o-y, -3% q-o-q). Based on the press release, despite the strong output data, FR mentioned that 3Q23 sales volume was impacted by a 50k MT inventory buildup vs.14k MT drawdown in 3Q22.
- CPO production volume reached 286k MT (+13.5% y-o-y, +29.4% q-o-q). Stellar CPO production volumes achievement was driven by nucleus and plasma (smallholders) fresh fruit bunches output of 908k MT (+1.8% y-o-y, +29.5% q-o-q) and 148k MT (+5.9% y-o-y, +20.9% q-o-q) respectively. FFB yield reached 5.5MT/ha (+5.8% y-o-y, +31% q-o-q) , followed by CPO extraction rate of 22.6% (2Q23/3Q22 : 22.7%/22.3%).
Our View
- We maintain our BUY rating with TP of S$2.0. We maintain our BUY rating with 2024 DCF-based TP at S$2.0 (WACC: 11.8% TG: 2%). Our target price implies 12.5x FY24F PE, which is slightly higher its five-year average PE of 11.4x on recovering earnings outlook next year in 2024F, after a challenging year in 2023, especially in 1H23. We believe FR’s valuation is undemanding for a well-managed, young palm oil assets play which can capitalize the recovering palm oil price trend better than its peers with older assets. We will share more insights from earnings briefing today (10 November 2023, 3pm SGT).
Quarterly operational and financial data
Source : Company, DBS Bank