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

UOB Kay Hian (UOBKH) has upgraded First Resources to “buy” from “hold” after the stock declined over 10 per cent since the research house downgraded it in November 2022. 

The brokerage continues to value First Resources at a nine times price-to-earnings ratio based on earnings estimates for FY2023. Its target price on the stock therefore remains unchanged at S$1.85. 

UOBKH said on Tuesday (Feb 7) that it sees the recent share price decline as a buying opportunity, as it expects the palm oil provider’s Q4 financials to perform better than its peers, while also reporting an estimated core net profit of up to US$100 million. 

The brokerage is also projecting a dividend yield of 9.7 per cent and 7.2 per cent for FY2022 and FY2023 respectively. 

Ahead of the group’s Q4 financials to be released on Mar 1, UOBKH said it is expecting First Resources to turn net cash during the quarter due to its strong cash flow generating upstream operations.

This is because the company has already sold forward some of its contracts in H1 FY2022, said the research house, resulting in higher average selling prices of crude palm oil compared to its peers. 

BT in your inbox

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign Up

Sign Up

More sales volume during the quarter with higher drawdown and stable refining margin are also expected to contribute to the improved financial performance in Q4 FY2022.

UOBKH expects the palm oil provider’s fresh fruit bunches (FFB) production to meet its estimates of 4 per cent year-on-year growth for FY2022. 

It is also projected to achieve a higher FFB production growth of 7 per cent year on year on the back of yield recovery, a better harvesting round, as well as crop recovery as weather conditions are expected to normalise.

SEE ALSO

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

First Resources underlying net profit surges 120.1% in Q3

“We believe First Resources could see record-high earnings in 2022 with net profit exceeding the US$300 million mark,” stated the research team. 

Net profit forecasts for First Resources are at US$343 million for FY2022, US$245 million for FY2023, and US$237 million for FY2024. 

Shares of First Resources traded higher by 2.6 per cent or S$0.04 at S$1.56 as at 11.33 am.