First Resources

First Resources: UOB Kay Hian maintains Buy with $2.30 TP. Note that FR has acquired two land parcels with a total of 23,800ha in Riau and West Kalimantan. These acquisitions come with planted areas and a mill, which could make marginal contributions to FR’s 2013 earnings. FR is paying about US$3,436/ha and US$8,914/ha for the Lynhurst and GSI acquisitions respectively. These prices are higher than the recent US$2,091/ha acquisition by Bumitama Agri in West Kalimantan. However, both Lynhurst’s and GSI’s land are located near to FR’s existing area and comprise mature palm oil areas which would contribute to FR’s bottom line immediately. Also, Lynhurst owns a CPO mill. House expecting marginal earnings enhancement of 0.4-2.0% in 2012-14, coming only from GSI as the bulk of the planted area is still young where earnings contribution will be negative as operating cost for trees aged 4-5 years is higher than revenue. Also, the area is not well managed by the previous owner and it takes about 2-3 years to see higher productivity from a rehabilitated estate. Expect another good set of results in 3Q12, supported by strong production growth, drawdown of inventory and prices slightly cushioned by higher ASP locked in earlier. Maintain BUY. Target price: S$2.30.