First Resources

First Resources: Despite achieving 2Q15 net profit growth of 9.8% y/y to $28.6m, First Resources' 1H15 earnings of $56.3m (-20.8%) still failed to meet market expectations, attaining just 34.3% of full year estimates.

For the quarter, sales grew 5.9% to US$118.8m on higher sales volumes pared by a 15.5% slump in CPO average selling price of US$593/ton.

In its plantations and palm oil mills segment, sales volumes expanded across the board with CPO sales volume raking up a 28.6% gain to 170,304 tons while palm kernel sales volume jumped 44.3% to 39,929 tons. Its refinery and processing segment also saw robust growth of 25.6% to 123,681 tons.

Overall gross margins slid 3.8 ppt to 50.5% mainly due to the effects of lower palm oil prices.

From an operations standpoint, FFB yield improved to 4.4 tons/ha, while CPO extraction rate remained stable at 22.5% (+0.2ppt). Average tree profile remains relatively young at nine years, providing scope for higher production growth.

Interim DPS of 1.25¢ was maintained.

Moving forward, management expects palm oil prices to continue to be pressured by subdued demand as well as low prices of crude oil and other edible oils.

However, in the longer term, industry fundamentals remain positive, supported by demand growth from emerging markets as well as a higher biodiesel blending mandate in Indonesia.

On the production front, growth is expected to continue for the rest of 2015 as it enters the traditional up-cycle that typically takes place in 2H.

At current price, First Resources is trading at 12.3x forward P/E and 2x P/B