First Resources

First Resources: Daiwa maintains OutPerform with $1.74 TP. Note that 4Q10 net profit was 13.5% and 9.1% lower than house orecast and that of the Bloomberg consensus, respectively, due to a higher-than-expected effective tax rate. According to management, taxes included some provisions for withholding tax….

Co. has also announced an agreement to purchase more than 100,000ha of land, on which it plans to plant about 40,000ha of rubber trees. Management also targets to have 200,000ha of palm plantations within five years, versus 120,800ha as at 31 December 2010. In house view, this move could help secure the company’s 2016-2024 net-profit growth, which encompasses the time needed to plant the trees and for them to reach commercial maturity….

In house view, the profitability of rubber trees relies mostly on the prices of natural rubber and fertiliser, as well as wage levels in seven years when the trees mature. House is bullish about the price of rubber over the next seven years, but bearish over the next six months….

Note that CPO prices declined on a month-on-month basis in Feb11 due to the risk assigned to civil unrest in the Middle East. If assume the unrest does not spread to Saudi Arabia, house forecast the price of CPO to rise to about US$1,300/tonne by the end of Mar11,