PALM oil producer First Resources : EB5 -3.38% reported on Friday (Nov 10) a 56 per cent drop in its Q3 net profit to US$51.1 million, down from US$116.3 million from the same period last year.

 

Sales went down 31.4 per cent to US$248.3 million for the quarter, with the company hit by a net inventory build-up of 50,000 tonnes in the same period last year, there was a net drawdown of 14,000 tonnes, despite increased production levels.

 

For the third quarter, its crude palm oil production rose 13.5 per cent to 286,574 tonnes and palm kernel production grew 9.1 per cent to 62,067 tonnes.

 

First Resources also harvested 2.4 per cent more fresh fruit bunches in Q3 &ndash 1.1 million tonnes.

 

Its earnings before interest, taxes, depreciation and amortisation for the quarter fell 48.3 per cent to US$82.8 million.

 

On a year-to-date basis, sales volumes for the three quarters improved, due to the effects of a larger build-up in inventory from the temporary export ban last year.

 

Sales for the nine months were down 22.3 per cent to US$697.1 million and net profit dropped 53.2 per cent to US$118.8 million.

 

The group said: &ldquo Overall, the group&rsquo s performance reflected the effects of palm oil priced at lower levels in the first nine months of 2023, compared to the record-high prices last year.

 

&ldquo The fundamentals of the palm oil industry continue to be influenced by the macroeconomic environment and geopolitical tensions, as well as the potential impact of the brewing El Nino (weather phenomenon) on global supplies of palm and other vegetable oils.&rdquo

 

The group also noted that Indonesia&rsquo s policies, the B35 biodiesel mandate and Domestic Market Obligation, are expected to drive domestic demand and consumption.

 

For the three quarters, crude palm oil production improved 6.2 per cent to 693,222 tonnes, and palm kernel production increased 3 per cent to 150,301 tonnes. Fresh fruit bunches harvested fell 1.8 per cent to 2.6 million tonnes.

 

The group expects its output for Q4 to &ldquo taper off quarter on quarter from its peak production quarter&rdquo in Q3, while still showing growth against Q4 last year.

 

As at Sep 30, attributable equity decreased by 2.3 per cent to US$1.28 billion from US$1.3 million as at Dec 31. This was mainly due to dividends paid during the nine months, partially offset by foreign-currency translation gains from the appreciation of the Indonesian rupiah against the US dollar during the period.

 

The group also highlighted a healthy financial position with a gross gearing ratio at 0.17 times, as well as cash and bank balances of US$252.1 million as at Sep 30.

 

DBS Group Research highlighted that the Q3 earnings were ahead of its estimate and maintains its &ldquo buy&rdquo call with target price of S$2, which implies 12.5 times the research team&rsquo s forecasted FY2024 earnings.

 

The target price, based on a price-to-earnings (PE) ratio slightly higher than the company&rsquo s five-year average PE, factors in a recovering earnings outlook next year, after a challenging 2023.

 

&ldquo We believe First Resources&rsquo valuation is undemanding for a well-managed, young palm oil assets player, which can capitalise on recovering palm oil prices better than its peers with older assets,&rdquo said the research team.