First Resources: IIFL Initiate with Add Rating and $1.53 TP. Note that First Resources, offers a good proxy to CPO prices (correlation of 0.9). Besides the upside from higher CPO prices, Co. would likely deliver a strong production growth of 17% CAGR over the next three yrs (owing to its maturing plantations and improved yield profile).
As one of the most-efficient plantation Co’s First Resources enjoys the highest net profit margin compared to its Indonesian and Malaysian peers. Expect Production CAGR of 17% over the next 3yrs, as more than half of its crops are young and immature (aged 0-7 years) and will enter into prime production stage (aged 8-17 years) over the next few yrs. Grp also has more than 160k ha of unplanted land in Kalimantan, which will support planting growth target for the next 8 to 10 yrs.
Grp commands higher net profit margin vs Indonesian and Msian peers as it has a higher-than-industry CPO extraction rate and FFB (fresh fruit bunches) yield per ha. Assuming that CPO prices appreciate by 5% annually in the long term and yield profile of the palm plantations improves, DCF suggests a fair value of $1.53.
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