<Result Analysis> Defending against weak refining margin
- First Resources (FR) posted FY23 earnings of US$145m (-56.5% y-o-y), in line with our estimates
- Announced final dividend of Scts3.7/share (yield : 2.6%) bringing FY23 total dividend to S$6.2/share
- Maintain BUY with TP of S$2.0, FR is our top pick among palm oil plantation companies
What’s new
FY23 net profit reached US$145m (-56.5% y-o-y) in line with our estimates. Reported earnings comprises 102% our FY23F earnings forecast. We anticipated weaker earnings of US$27m (-66.9% y-o-y, -47.9% q-o-q) in 4Q23 on weak palm oil selling price and refining margin. FR also announced final dividend of Scts3.7/share , implying dividend yield of 2.6% and the 2023 final dividend of S$6.2/share (50% payout ratio, -57% y-o-y) respectively. Topline reached US$981m (-20% y-o-y) in 2023, affected not only by the selling price but also by a lower refined sales volume of 481k MT (-19.8% y-o-y). This is because FR sold more CPO, totaling 568k MT (+9.5% y-o-y), due to better margins. FR has successfully maintained its good CPO yield and extraction rate at 4.2MT/ha and (FY22 4.1/ha) and 22.7% (FY22 : 22.3%) respectively, which helped FR to grow CPO output by 8% y-o-y to 951k MT in FY23.
Our view
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 than its five-year average PE of 11.4x on recovering earnings outlook this year, 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 forecast earnings to grow by 30% y-o-y to US$188m mainly on recovering profitability trend y-o-y.
Quarterly financial performance summary
Source : Company, DBSVI