First Resources Limited – Update (Jasmine Lee)

Recommendation: Hold

Previous close: S$1.45

Fair value: S$1.53

·         Share placement of 90 million shares at S$1.48 each. Of the 90 million shares, 75 million shares are from Eight Capital Inc. and 15 million are treasury shares.

·         Rationale of placement is to increase the Company’s free float. After placement, free float increases to ~25%. Eight Capital Inc. remains a major shareholder, owning ~68% of the Company

·         Earnings dilution to be negligible (~1.0%) due to the sale of the 15 million treasury shares. Increasing the total outstanding shares from 1,453 million to 1,468 million

·         After updating our model, using a cost of equity of 10.26% and based on the DCF method, we have a new target price of S$1.53 and maintain our Hold recommendation for the stock

 

/PS/

 

Phillip Securities Research Pte Ltd

Singapore

15 Nov 2010

 

First Resources Limited – Results (Jasmine Lee)

Recommendation: Hold

Previous close: S$1.40

Fair value: S$1.54

·         9M10 and 3Q10 revenue increased by 39.8% y-y and 42.9% y-y to US$212.2m and US$88.2m respectively. 9M10 and 3Q10 net profit also increased by 21.3% y-y and 40.1% y-y to US$72.6m and US$36.9m respectively.

·         Improvement in performance and better margins were mainly driven by higher prices of CPO and cost management.

·         FFB production has seen strong recovery in 3Q10 and recovery is expected to continue in 4Q10. FFB production for 9M10 and 3Q10 was 1,100,304 tonnes (+0.1% y-y) and 476,523 tonnes (+16.5% y-y) respectively

·         Revising our estimated average CPO prices for First Resources to US$825/tonne in FY10 and US$800/tonne in FY11 and using a cost of equity of 11.24%, we derived a target price of S$1.54 using the DCF method. We downgrade our call to a Hold recommendation in view of limited upside

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