First Resources (FR SP/BUY/S$1.58/Target: S$2.40)
Strong 8M15 Production A Buffer For Coming Weakness
Production Summary
| (tonnes) | Aug 15 | mom % chg | yoy % chg | 8M15 | yoy % chg | Comments |
| FFB Processed | 343,093 | 32.3 | (2.6) | 1,972,091 | 11.1 | Growth was lower vs harvested FFB as external FFB purchased dropped. |
| FFB Harvested | 313,372 | 35.9 | 0.6 | 1,756,735 | 14.2 | |
| Nucleus | 287,318 | 40.0 | 2.9 | 1,583,188 | 14.4 | Strong mom increase on more harvesting days and peak crops |
| Plasma | 26,054 | 3.0 | (19.2) | 173,547 | 12.0 | |
| FFB Purchased | 29,721 | 3.1 | (27.0) | 215,356 | (8.9) | |
| CPO | 77,526 | 35.6 | 0.2 | 438,695 | 11.4 | |
| Palm Kernel | 17,714 | 34.2 | (2.9) | 102,131 | 11.1 | |
| Blended FFB Yield (tons/ha) | 2.1 | 31.3 | (12.5) | 11.9 | 1.7 | FFB yield down yoy in August, mainly dragged down by plasma. |
| OER (%) | 23.0 | 1.3 | 2.7 | 22.8 | 1.3 | Improved as less third-party fruits purchased. |
Source: FR, UOB Kay Hian
WHAT'S NEW
· First Resources (FR) announced Aug 15 production data. FFB production grew by a strong 35.9% mom due largely to more harvesting days (Jul 15's was affected by the Lebaran holidays). But production was relatively flat at +0.6% yoy as growth from nucleus areas was offset by a contraction in plasma production. Plasma areas were affected by last year's drought. For 8M15, FFB production was up 14.2% yoy.
· Reducing third-party purchases. Total CPO production posted a slower growth vs FFB production due to lesser third-party purchases at mills. FFB purchased fell 27% yoy in August and 8.9% yoy in 8M15.
IMPACT
· On track to meet expectations. Although 8M15 production growth of 14.4% yoy was slightly ahead of our expectation of 12.8% yoy for 2015, we are keeping our forecast because: a) of the higher base impact from 4Q14, and b) current dryness and haze could delay the ripening process and result in smaller bunch size.
· FR's integrated model gives it an advantage to refine its own CPO to sell at better prices. Since the announcement of an export levy in Indonesia, CPO prices were adjusted lower to reflect the levy. This benefitted refiners as feedstock price is lower and the export levy for refined products is lower than CPO prices. FR will also benefit from the biodiesel policy in Indonesia as Pertamina resumes its purchases of biodiesel to fulfill the mandate.
Earnings revision
· We maintain our EPS forecasts of 8.5 US cents, 11.5 US cents, and 12.7 US cents for 2015-17 respectively.
RECOMMENDATION
· Maintain BUY and target price at S$2.40, based on 15x 2016F PE. We like FR as it is a beneficiary of Indonesia's new export levy and biodiesel policies. It also has one of the lowest cost of production and good track record of delivering better-than-industry FFB yield and OER.
Figure 1: FR's Production Trend 
Source: FR
Regards,
Singapore Research Team
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This transmission has been issued by a member of the UOB Kay Hian Group for the information of the addressee only and should not be reproduced and/or distributed to any other person. Each page attached hereto must be read in conjunction with any disclaimer which forms part of it. Unless otherwise stated, this transmission is neither an offer nor the solicitation of an offer to sell or purchase any investment. Its contents are based on information obtained from sources believed to be reliable but UOB Kay Hian Group makes no representation and accepts no responsibility or liability as to its completeness or accuracy.
This transmission has been issued by a member of the UOB Kay Hian Group for the information of the addressee only and should not be reproduced and/or distributed to any other person. Each page attached hereto must be read in conjunction with any disclaimer which forms part of it. Unless otherwise stated, this transmission is neither an offer nor the solicitation of an offer to sell or purchase any investment. Its comments are based on information obtained from sources believed to be reliable but UOB Kay Hian Group makes no representations and accepts no responsibility or liability as to its completeness or accuracy.
