Brokers’ take: UOBKH downgrades First Resources to ‘hold’, says positives priced in

UOB Kay Hian (UOBKH) has downgraded First Resources to “hold” from “buy”, after the palm oil producer raised its dividend payout ratio to 50 per cent from 30 per cent amid strong Q3 results.

In light of the revised dividend payout, the research house recommends holding on to the stock to reap “good” dividend yields of 6 per cent to 8 per cent between FY2022 and FY2024. 

On Tuesday (Nov 15), UOBKH said that its “hold” call is also based on First Resources : EB5 0%’ current share price level, which has risen by 16 per cent in the last month to surpass the research house’s previous target price of S$1.70. Its analysts believe that the current price factors in “the surprise from the strong set of (Q3) results”.

The palm oil producer’s core net profit for the first nine months of FY2022 exceeded UOBKH’s expectations to come in at 99 per cent of its full-year estimates. 

It has therefore raised the target price to S$1.85 after lifting its earnings forecasts for FY2022 by 39 per cent. It lifted estimates for FY2023 to FY2024 by 5 per cent to 10 per cent as well. 

The research house also predicts that First Resources will achieve a record-high net profit of US$343 million for FY2022.

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Nonetheless, UOBKH downgraded the stock to “hold” on the higher share price, which may continue to climb with First Resources’ Q3 results priced in.

RHB Research has likewise raised its target price for the palm oil producer while reiterating a “neutral” outlook on the stock.

Its higher target price of S$1.75 – S$1.50 previously – is the result of lifting its earnings forecasts for FY2022 to FY2024 by 8 per cent to 23 per cent. The research house adjusted its forecasts in response to First Resources’ 9M FY2022 earnings coming in at 92 per cent to 94 per cent of its full-year expectations.

RHB said on Tuesday that it expects a 9 per cent dividend yield for FY2022.

Shares of First Resources were trading 0.6 per cent or S$0.01 lower at S$1.67 as at 9.22 am.