Singapore Company Focus

First Resources
Bloomberg: FR SP | Reuters: FRLD.SI

Refer to important disclosures at the end of this report

DBS Group Research . Equity

28 Feb 2013

BUY S$1.94 STI : 3,261.12

Price Target : 12-month S$ 2.16 Reason for Report : 4Q12 results, change in forecast Potential Catalyst: Additional refining capacity to come onstream FY14F and recovery in CPO prices in FY15F DBSV vs Consensus: Lower FY13F-14F earnings on lower forecast CPO prices Analyst Ben SANTOSO +65 6398 7976 bensantoso@dbsvickers.com

Too cheap to ignore

4Q12 core earnings of US$47.3m was above our expectation of US$42m; 2.5 S cents final DPS declared Borrowing costs were lower than expected on conversion of CB FY13F-14F earnings tweaked by 0-1% after imputing FY12 actual numbers BUY call reiterated for 14% return

Price Relative
S$ Relative Index 374 324 1.7 274 224 174 0.7 124 0.2 Feb-09 74 Feb-13 2.2

1.2

4Q12 core profit ahead of expectations. Stripping out biological asset gains (net of tax), First Resources (FR) booked 4Q12 core net profit of US$47.3m (-5% y-o-y; -26% q-o-q). Including non-operating items, 4Q12 net profit was booked at US$73.1m (-6% y-o-y; +14% q-o-q). DPS of S$0.025 was declared (payable 28 May13), which would bring its FY12 payout ratio to c.26%. Net gearing (ex. NCI) stood at 12% at end-Dec 12. Variance lies in borrowing costs. We had estimated c.50% more borrowing costs in FY12, despite redemption of the groups CB and overestimated the cost of RM600m Sukuk issued in Jul12 and RM400m issued in Dec12. However, this was offset by 71% y-o-y drop in 4Q12 refining EBITDA, due to drop in volume, ASP (i.e. high-cost inventory), and shift in less favourable export tax spread in Indonesia, with the drop in CPO prices. FY13F-14F tweaked 0-1%. We understand Indonesian refined products are now offered at US$20/MT discount vs Malaysian spot prices. Imputing this in our forecast for FRs refined products (against 5% previously assumed) together with actual FY12 numbers we have adjusted the groups forward earnings slightly. All in, our DCF-derived TP is unchanged at S$2.16 (WACC 14%, ERP 8.2%, Beta 1.2, TG 3%). BUY call reiterated. At current price we believe the market has already imputed softer results this year from lower CPO prices and higher borrowing costs. Catalyst for the stock includes boost from additional refining capacity to come onstream in FY14F and recovery in CPO prices in FY15F.
At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders Eight Capital (%) FMR (%) DB Intl Trust Spore (%) Free Float (%) Avg. Daily Vol.(000)

Feb-10

Feb-11

Feb-12

First Resources (LHS)

Relative STI INDEX (RHS)

Forecasts and Valuation

FY Dec (US$m) 2012F 2013F 2014F 2015F

Turnover EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) Net Pft (ex. BA gains) EPS (S cts) EPS Pre Ex. (S cts) EPS Gth (%) EPS Gth Pre Ex (%) Diluted EPS (S cts) Net DPS (S cts) BV Per Share (S cts) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Earnings Rev (%): Consensus EPS (S cts): Other Broker Recs:

603 365 326 237 237 211 18.5 18.5 12 12 18.5 3.7 86.5 10.4 10.4 12.5 7.3 1.9 2.2 0.1 23.8

663 295 246 181 181 181 14.2 14.2 (24) (24) 14.2 4.6 95.6 13.7 13.7 11.2 9.0 2.4 2.0 0.1 15.6 0.9 18.3 B: 15

765 364 317 233 233 233 18.2 18.2 29 29 18.2 4.9 108.9 10.6 10.6 9.0 6.9 2.5 1.8 CASH 17.8 (0.4) 20.7 S: 0

891 422 379 279 279 279 21.8 21.8 20 20 21.8 6.0 124.7 8.9 8.9 7.6 5.6 3.1 1.6 CASH 18.7 (1.0) 27.3 H: 1

ICB Industry : Consumer Goods ICB Sector: Food Producers Principal Business: FR is mid-sized planter with strong balance sheet and high growth outlook. FR has aggressively planted since 2004.

1,584 3,065 / 2,474 63.2 6.7 5.6 24.5 2,100

Source of all data: Company, DBS Vickers, Bloomberg

www.dbsvickers.com ed: JS / sa: JC

Company Focus First Resources

4Q12 results summary and comments

Qua rt erly result s Sales Cost of sales Gro ss pro fit BA gains Other operating income/exp. Selling and dist. costs G&A exp. FX gains (losses) Ope rat ing pro fit Op. pro fit ex. BA ga ins Net financial expenses Other income/exp. P re t a x pro fit P ret a x pro fit e x. BA gains Tax exp. Minority Net pro fit Ne t pro fit ex. BA ga ins Gross margin Operating margin Operating margin ex. BA gains Pretax margin Pretax margin ex. BA gains Tax rate Net margin Net margin ex. BA gains 4Q11 158.2 -46.4 111.9 39.2 -0.4 -12.6 -10.4 -12.86 114.9 75.7 -7.3 1.5 109.1 69.9 -27.9 -3.4 77.8 49.8 70.7 72.6 47.8 68.9 44.2 25.6 49.2 31.5 3Q12 151.8 -43.5 108.2 0.0 -0.4 -12.1 -7.4 3.08 91.4 91.4 -4.5 0.7 87.6 87.6 -20.1 -3.1 64.3 64.3 71.3 60.2 60.2 57.7 57.7 23.0 42.4 42.4 4Q12 134.1 -41.9 92.2 35.8 -0.4 -10.8 -11.0 1.26 107.1 71.3 -4.8 2.2 104.5 68.8 -27.9 -3.5 73.1 47.3 68.7 79.9 53.2 77.9 51.3 26.7 54.5 35.3 % chg y-o -y -15.2 -9.6 -17.6 -8.7 NM -14.3 6.1 NM -6.8 -5.8 -34.9 44.7 -4.2 -1.6 0.2 4.3 -6.1 -5.0 % chg q-o -q -11.6 -3.7 -14.8 NM NM -11.2 49.1 -59.3 17.2 -22.0 5.4 230.8 19.4 -21.5 38.9 13.0 13.6 -26.4 Co mm e nt s Sequentially lower volume, ASP Lower FFB and CPO purchase price Drop in refining EBITDA on lower tax spread

Lower export tax rates

Higher ending cash, issuance of Sukuk

Strong results may be one-off

Source: Company, DBS Vickers

Quarterly operating statistics

Ope rat ing pe rfo rm ance Hectareage - own Mature Immature Hectareage - smallholders Mature Immature FFB production Own Smallholders CPO production PK production FFB yield (MT/ha) - own only OER (%) EBI T DA Plantations and Palm Oil Mills Refining and processing 1Q11 111,102 74,704 36,398 13,140 10,992 2,148 373,536 337,965 35,571 88,021 20,070 4.5 23.6 2Q11 113,743 74,704 39,039 13,140 10,992 2,148 412,417 374,115 38,302 98,697 22,374 5.0 23.9 3Q11 116,358 74,704 41,654 13,140 10,992 2,148 556,996 510,169 46,827 132,333 30,623 6.8 23.8 4Q11 113,143 74,704 38,439 19,108 10,995 8,113 555,616 503,125 52,491 133,062 30,926 6.7 23.6 1Q12 115,579 82,006 33,573 19,338 12,293 7,045 457,418 411,365 46,053 110,168 25,769 5.0 24.1 2Q12 116,365 82,031 34,334 20,069 12,293 7,776 482,220 426,704 55,516 115,368 26,818 5.2 23.9 3Q12 118,300 82,031 36,269 20,287 12,293 7,994 642,187 568,997 73,190 155,094 36,347 6.9 23.0 4Q12 125,805 85,888 39,917 20,598 12,293 8,305 587,158 517,677 69,481 145,201 34,195 6.0 23.2

55,628 3,097 58,725

56,076 838

72,888 11,112

83,307 11,771

74,476 5,796

66,682 4,500

78,606 16,223

73,101 3,366

EBITDA margin
To t al EBI T DA (US$ m )

1.7%
56,914

19.4%
84,000

17.7%
95,078

8.3%
80,272

6.6%
71,182

23.7%
94,829

9.1%
76,467

Plantations EBITDA margin/MT Refining EBITDA margin/MT

505 2,313

515 20

509 242

532 222

481 89

448 73

488 271

417 90

Source: Company, DBS Vickers

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Company Focus First Resources

Key Assumptions
FY Dec 2011A 2012F 2013F 2014F 2015F

Sensitivity Analysis
2013

CPO price (RM/MT) Mature oil palm CPO sales volume (MT) Palm kernel sales vol. Avg. USD/IDR rate

3,274 74,704 452,113 103,993 8,758

2,866 85,888 525,831 123,129 9,376

2,640 107,196 594,518 139,213 9,250

2,610 118,002 695,131 162,863 8,975

2,820 123,481 764,982 178,782 8,775

CPO price +/- 1.0%

Net Profit +/- 1.6%

We expect CPO prices to remain weak over the next two years

Segmental Breakdown
FY Dec 2011A 2012F 2013F 2014F 2015F

Revenues (US$m) CPO Palm kernel Olein, RBDPO, biodesel PKO Others Total

416 57 94 0 (72) 495

464 49 242 16 (167) 603

474 60 381 32 (284) 663

558 71 403 34 (300) 765

645 83 455 38 (330) 891 Margins Trend

Income Statement (US$m)

FY Dec 2011A 2012F 2013F 2014F 2015F

66.0% 61.0% 56.0% 51.0% 46.0% 41.0% 36.0% 31.0% 26.0% 2011A 2012F 2013F 2014F 2015F
Operating Margin % Net Income Margin %

Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)

495 (149) 346 (35) 310 (1) 0 (28) 0 282 (76) (9) 0 196 196 331 49.9 28.4 31.0 37.3 69.9 62.8 39.7 24.6 14.4 17.6 17.6 11.2

603 (221) 382 (49) 334 10 0 (17) 0 326 (78) (11) 0 237 237 365 22.0 10.4 7.5 20.7 63.3 55.3 39.3 23.8 13.8 15.6 19.8 19.8

663 (311) 353 (85) 267 2 0 (22) 0 246 (57) (9) 0 181 181 295 9.9 (19.3) (19.9) (23.5) 53.2 40.3 27.3 15.6 9.2 11.0 32.7 12.0

765 (338) 428 (94) 333 2 0 (18) 0 317 (73) (11) 0 233 233 364 15.4 23.5 24.7 28.6 55.9 43.5 30.4 17.8 10.9 13.0 26.7 18.7

891 (378) 514 (124) 389 2 0 (12) 0 379 (87) (13) 0 279 279 422 16.5 15.8 16.9 19.8 57.6 43.7 31.3 18.7 11.9 13.8 27.5 33.6

Catalyst will be additional capacity coming onstream next year

Source: Company, DBS Vickers

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Company Focus First Resources

Quarterly / Interim Income Statement (US$m)
FY Dec 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012

Revenue Trend
180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0
2Q2010 3Q2010 4Q2010 1Q2012 2Q2012 3Q2012 1Q2011 2Q2011 3Q2011 4Q2011

60% 50% 40% 30% 20% 10% 0% -10% -20% -30%

Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (%) Margins Gross Margins (%) Opg Margins (%) Net Profit Margins (%)

158 (46) 112 3 115 0 2 (7) 0 109 (28) (3) 78 78 116

165 (71) 94 (23) 71 0 1 (6) 0 66 (15) (2) 49 49 72

153 (65) 88 (16) 72 0 0 (4) 0 68 (15) (2) 51 51 72

152 (44) 108 (17) 91 0 1 (5) 0 88 (20) (3) 64 64 92

134 (42) 92 15 107 0 2 (5) 0 105 (28) (4) 73 73 109

Revenue

Revenue Growth % (QoQ)

Drop in ASP, volume and refining margin dragged overall profitability

8.9 37.0 34.6 51.6 70.7 72.6 49.2

4.2 (38.3) (38.1) (37.1) 57.2 43.1 29.7

(7.5) 0.7 1.3 3.6 57.4 47.2 33.3

(0.5) 27.4 27.0 26.7 71.3 60.2 42.4

(11.6) 18.7 17.2 13.6 68.7 79.9 54.5

Balance Sheet (US$m)

FY Dec 2011A 2012F 2013F 2014F 2015F

Asset Breakdown (2013)

Debtors 3.8% Net Fixed Assets 39.0%

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets ST Debt Other Current Liab LT Debt Other LT Liabilities Shareholders Equity Minority Interests Total Cap. & Liab. Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)

275 0 908 210 39 34 34 1,500 89 88 261 134 885 44 1,500 19 (139) 17.5 156.4 83.0 0.4 1.8 1.4 0.1 0.2 45.8 5.0

321 0 1,049 405 58 35 63 1,931 40 90 498 145 1,106 51 1,931 65 (133) 20.8 118.3 89.3 0.4 4.3 3.4 0.1 0.1 24.1 5.8

321 0 1,153 432 60 32 33 2,031 1 145 535 67 1,222 60 2,031 (20) (105) 18.4 116.8 75.9 0.3 3.8 3.2 0.1 0.1 23.3 5.7

307 0 1,215 569 66 37 36 2,229 1 159 535 69 1,393 71 2,229 (21) 33 16.3 140.5 74.6 0.4 4.4 3.8 CASH CASH 14.2 5.3

297 0 1,278 735 73 43 40 2,467 1 180 535 71 1,596 84 2,467 (24) 199 16.2 137.7 73.1 0.4 4.9 4.3 CASH CASH 15.4 NA

Inventory 7.3%

Assocs'/JVs 0.0%

Bank, Cash and Liquid Assets 49.9%

Net gearing stood at 12% at end FY12

Source: Company, DBS Vickers

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Company Focus First Resources

Cash Flow Statement (US$m)
FY Dec 2011A 2012F 2013F 2014F 2015F

Capital Expenditure
180000 160000 140000 120000 100000 80000 60000 40000 20000 0 2011A 2012F 2013F 2014F 2015F

Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (US cts.) Free CFPS (US cts.)

282 22 (76) 0 (38) (20) 169 (160) 0 0 0 (27) (187) (35) 44 12 (3) 19 0 1 14 1

326 22 (78) 0 (47) (26) 198 (130) 0 0 0 (48) (177) (47) 189 32 0 173 0 194 15 4

246 26 (57) 0 85 (80) 221 (125) 0 0 0 (3) (128) (59) (2) (6) 1 (66) 0 27 9 6

317 30 (73) 0 2 1 276 (76) 0 0 0 (1) (77) (62) 0 0 1 (61) 0 137 17 13

379 31 (87) 0 2 1 326 (83) 0 0 0 (1) (84) (77) 0 0 1 (76) 0 166 20 15

Capital Expenditure (-)

Guided capex is US$200m for FY13F

Source: Company, DBS Vickers

Target Price & Ratings History
2.86 2.66 S.No . 2.46 2.26 2.06 1.86 1.66 1: 2: 3: 4: S$

Cl o s i n g Ta rg e t Pri c e Pri c e 28 Feb 12 1.84 2.15 08 May 12 1.83 2.15 Da te 15 May 12 24 Jul 12 15 Aug 12 22 Oct 12 12 Nov 12 11 Jan 13 20 Feb 13 1.75 2.00 2.04 2.03 2.08 1.99 1.95 2.15 2.15 2.15 2.03 2.18 2.18 2.16

R a ti n g Buy Buy Buy Hold Hold Hold Hold Hold Buy

4 1 2 3
Apr-12 Jun-12

7 8 9

5: 6: 7: 8: 9:

1.46 Feb-12

Aug-12

Oct-12

Dec-12

Not e : Share price and Target price are adjusted for corporate actions.

Source: DBS Vickers

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Company Focus First Resources

DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

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Company Focus First Resources

COMPANY-SPECIFIC / REGULATORY DISCLOSURES DBS Vickers Securities (Singapore) Pte Ltd and its subsidiaries do not have a proprietary position in the company mentioned as 1. of 26-Feb-2013 2. DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.-registered brokerdealer, may beneficially own a total of 1% or more of any class of common equity securities of the company mentioned as of 28 Feb 2013. Compensation for investment banking services: i. DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA may have received compensation, within the past 12 months, and within the next 3 months receive or intends to seek compensation for investment banking services from the company mentioned. DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

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