UOB Kay Hian (UOBKH) has upgraded First Resources : EB5 +6.58% to &ldquo buy&rdquo from &ldquo hold&rdquo 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&rsquo 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&rsquo 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. 

 

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&rsquo 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.

 

&ldquo We believe First Resources could see record-high earnings in 2022 with net profit exceeding the US$300 million mark,&rdquo 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. 

On Jan 30, FMR increased its deemed interest in First Resources : EB5 -1.95% to the 6 per cent threshold, from 5.96 per cent to 6.00 per cent.

 

The relevant market transaction involved a purchase of 583,100 shares of First Resources for a consideration of S$851,882 at an average price of S$1.46 per share.

 

This followed its deemed interest falling marginally below the 6 per cent threshold on Dec 30. FMR&rsquo s interests in the securities of First Resources are currently entirely deemed interests.

 

FMR is deemed to have interests in the securities of First Resources because such securities are held by funds and/or accounts managed by one or more FMR&rsquo s direct and indirect subsidiaries, which are fund managers.

 

First Resources was also among the five stocks that led the buyback consideration tally in January, buying back more than 1.1 million shares at an average price of S$1.41 per share.

 

For the 2022 calendar year the company bought back close to 8 million shares at an average price of S$1.43 per share following the buying back of close to 1.1 million shares at an average price of S$1.40 per share in 2021.

 

As reported back on Nov 14, First Resources recorded a 23.4 per cent increase in sales to US$897.1 million for its 9MFY22 (ended Sep 30) on the back of stronger palm oil prices, with earnings before interest, taxes, depreciation, and amortisation (Ebitda) and underlying net profit surging by 91.2 per cent and 206 per cent to US$390.7 million and US$253.8 million respectively.

 

This followed FY21 Ebitda coming in 20.7 per cent higher than FY20 at US$312.9 million, while underlying net profit rose 53.8 per cent over FY20 to US$149.2 million.

 

As one of the one of the leading palm oil producers in the region, First Resources manages over 200,000 hectares of oil palm plantations across the Riau, East Kalimantan, and West Kalimantan provinces of Indonesia.

 

First Resources also owns 18 palm oil mills, two refining and processing plants, and four kernel crushing plants in Indonesia.

 

First Resources has ranked as a top-50 traded Singapore stock since the end of 2021, generating a 6.2 per cent total return, while maintaining an average 30-day volatility of close to 40 per cent on moving palm oil prices.

 

First Resources executive director Ciliandra Fangiono has been the group&rsquo s CEO for more than a decade, playing a key role in charting its strategic directions.

 

Under his leadership, the group has expanded its plantation assets and has grown into an integrated player with its own processing capabilities.

 

Fangiono noted in mid-August that with palm oil&rsquo s attractive relative pricing against other competing edible oils encouraging replenishment of inventories by importing countries, the company believed palm oil consumption demand should remain supportive.