RHB downgraded First Resources : EB5 0% to “sell” from “neutral”, and lowered its target price to S$1.20 from S$1.60 on Monday (May 15).

The downgrade implies a potential downside of 12.4 per cent from the counter’s last trading price of S$1.37 as at 11.44 am. At the time, the palm oil producer’s shares were down 1.4 per cent or S$0.02.

RHB’s new target price is nine times its FY2023 price-to-earnings estimate. The research house noted that the palm oil producer is trading at a “steep” price-to-earnings ratio of 9.5 times, higher than its peers, who are trading between six to nine times.

On Friday, First Resources reported a disappointing 73.8 per cent fall in net profit to US$19.3 million for the first quarter ended Mar 31, 2023, on lower sales and a moderation in average selling prices.

Q1 net profit only made up 8 to 9 per cent of RHB’s and consensus FY2023 earnings forecast, RHB said.

RHB slashed its earnings estimates for First Resources by 20 per cent to 26 per cent for FY2023 to FY2025. The decline comes as it expects lower output of fresh fruit bunches, lower downstream margins and higher unit costs. The research team also took into account its latest in-house foreign exchange assumptions.

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It also trimmed its growth forecast for fresh fruit bunches in FY2023 to 1.2 per cent year on year, and maintained its FY2024 to FY2025 growth forecast at 2 per cent to 4 per cent year on year.

This comes as First Resources’ nucleus fresh fruit bunches production fell by 3.3 per cent on year, below RHB’s 2.2 per cent projection and the management’s 0 per cent to 5 per cent guidance for FY2023.

Remaining conservative, the research house also trimmed its estimates for the group’s downstream margins for FY2023 to FY2025 to reflect a gradual recovery. However, it expects First Resources’ downstream margins to remain positive for the next few quarters, given Indonesia’s competitive edge over Malaysia.