Brokers’ take: UOBKH says First Resources’ strong earnings priced in; downgrades to ‘hold’ 

UOB Kay Hian (UOBKH) has downgraded its call on First Resources to “hold” from “buy” after the palm oil producer posted a strong set of H2 FY2022 financials that surprised on the upside.

This comes as the research house believes First Resources’ current share price has already factored in the strong results.

Its target price on the stock was lowered to S$1.55 from S$1.85 previously, as UOBKH analysts are expecting the group’s FY2023 earnings to decline year on year.

In particular, the research house anticipates lower downstream margins amid competitive feedstock prices in Indonesia. It also projects a lower fresh fruit bunches (FFB) yield from the prolonged weather effects of La Nina. 

While crude palm oil (CPO) selling prices remain currently high amid tight production, its analysts believe prices will weaken in H2 2023 “once the market realises there may be a sudden boom in production” from the impact of La Nina.

“With the absence of the strong disparity between CPO and refined palm oil prices, we expect downstream margin to come in lower year on year in 2023, but still remain high as compared with historical average,” said the analysts.

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Cost of production is also expected to remain high this year, they added, though upstream margins may improve in the second half due to the lower pricing of fertiliser.

Meanwhile, CGS-CIMB Research raised its price target on First Resources to S$1.88 from S$1.86 after raising its FY2023 net profit forecast by 14 per cent, and by 16 per cent for FY2024 to reflect higher FFB output growth.

The research house, however, also expects the group to post a 35 per cent year-on-year decline in FY2023 net profit due to lower CPO prices.

SEE ALSO

First Resources net profit rises 53.4% in H2 to US$197.2 million; S$0.12 dividend proposed

Brokers’ take: UOBKH upgrades First Resources to ‘buy’ on share price weakness

First Resources underlying net profit surges 120.1% in Q3

Agri-commodity prices to ease as growth slows, but upward pressure remains amid macro woes

Palm oil players report solid H1 earnings, but CPO prices waning

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CGS-CIMB analyst Ivy Ng said she continues to rate the stock at “add” for its attractive valuations and strong balance sheet, together with an “appealing” dividend yield projection of 5.6 per cent for FY2023.

RHB Research, which maintains its “neutral” call on First Resources, lowered its target on the stock to S$1.60 from S$1.75 to imply a 2 per cent downside from its Mar 1 closing price of S$1.63. 

Like UOBKH, the RHB Research team deems the stock’s valuation as “fair” as it is trading in line with the range of its peers, after Wednesday’s (Mar 1) positive share price reaction to its latest results release.

“Nevertheless, dividend yield at 50 per cent payout should lend support, implying a 6 per cent FY2023 yield,” concluded the team.  

Shares of First Resources were trading S$0.01 or 0.6 per cent higher at S$1.64 as at 10.11 am on Thursday.