First Resources - RHB Invest 2023-03-02: Downstream Division Turned Negative In 2H22

• First Resources (SGX:EB5)'s FY22 numbers came in largely within expectations. Given yesterday’s positive share price reaction to the good dividend payout, we deem First Resources’s valuation as fair – First Resources's share price is trading at 8x 2023F, in line with its 6-10x peer range. Nevertheless, dividend yield at 50% payout should lend support, implying 6% FY23F yield.
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First Resources's FY22 results

• First Resources's FY22 earnings rose 165% y-o-y, largely in line with our and Street estimates, at 95-99% of FY22 forecasts.
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• Highlights of First Resources's results briefing:
  1. FY22 nucleus FFB production rose 2.2% y-o-y, in line with our 2.7% growth projection and management’s 0-5% guidance for FY22.For FY23, it is guiding for 0-5% nucleus FFB growth. We keep our FY23F-24F growth assumptions at 2-4%;
  2. High inventory build-up largely disposed in 4Q22. As at end-4Q22, the inventory build-up was at 40k tonnes, much lower than 2Q22’s 117k tonnes;
  3. Fertiliser application fell short, resulting in lower unit costs. First Resources achieved a unit cost of US$276/tonne (+10% y-o-y) in 2022. We understand fertiliser application was only 50% in 2022 due to wet weather. For 2023F, it is guiding for unit costs to rise to US$280- 300/tonne (~2-9% y-o-y), on the back of higher fertiliser costs coming from higher application but offset slightly by lower prices;
  4. Downstream margins turned negative in 2H22, recording EBITDA margin of -0.54% from 11.5% in 1H22. This was mainly due to negative refining margin as the tax levy holiday ended in mid-Nov 2022, which disrupted sales volumes, while domestic feedstock prices rose. Biodiesel margin also shrank during the period due to the sharp drop in by-product crude glycerine prices. Going forward, feedstock prices will likely remain high, which could continue to pressure refining margin. However, crude glycerine prices have recovered slightly which should help biodiesel margin.

First Resources – Earnings forecast and valuation

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Singapore Research RHB Securities Research | https://www.rhbgroup.com/ 2023-03-02 SGinvestors.io

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