Date of Report and Broker Information
Date: October 14, 2024
Broker: Maybank Research Pte Ltd
Company Overview
First Resources Ltd. (FR SP) is an integrated oil palm player primarily operating in Indonesia. The company is involved in the cultivation of oil palms, palm oil refining, and biodiesel processing facilities. It manages 213,421 hectares of oil palm plantation, including 177,930 hectares of nucleus plantations and 35,491 hectares of plasma areas. Additionally, it operates a small rubber plantation. The company’s key operations are spread across Riau, West Kalimantan, and East Kalimantan, employing over 27,700 workers.
Financial Performance
- Share Price: SGD 1.46
- Market Capitalization: SGD 2.3 billion (USD 1.8 billion)
- Free Float: 64.7%
- Major Shareholders:
- TMF Group BV: 5.6%
- King Fortune Trust: 4.2%
- Fidelity/FMR/Abigail: N/A
Key Financial Metrics (FY22A – FY26E):
- Revenue:
- FY22A: USD 1,225 million
- FY23A: USD 981 million
- FY24E: USD 915 million
- Core Net Profit:
- FY22A: USD 334 million
- FY23A: USD 146 million
- FY24E: USD 174 million
- Core EPS Growth:
- FY22A: 125.1%
- FY23A: (55.9)%
- FY24E: 18.9%
- Net DPS (Dividend Per Share):
- FY22A: 11.0 cents
- FY23A: 4.7 cents
- FY24E: 5.6 cents
- Net Gearing: The company maintained a net cash position in FY22A and FY26E forecasts.
ESG (Environmental, Social, Governance) Initiatives
Environmental Initiatives
- First Resources has made progress in reducing emissions through its methane capture plants, with 8 plants already in operation and 2 more under construction. Despite this, the company lags behind its peers in setting long-term “E” targets.
- RSPO Certification: The company is on track to achieve 100% RSPO certification by 2026. Currently, 36% of its plantation area and 6 mills are RSPO certified.
- Conservation Areas: First Resources has identified 24,465 hectares of land as conservation areas. The company planted approximately 36,000 trees from 2016 to 2022 and aims to rehabilitate 20 hectares of conservation areas.
- Emission Targets: While there have been improvements in disclosing Scope 1 and 2 emissions, Scope 3 emissions will only be disclosed from 2024 onwards.
Social Initiatives
- First Resources works closely with local communities through plasma scheme partnerships. The plasma smallholders, numbering over 16,000, supply Fresh Fruit Bunches (FFB) to the company at government-determined prices.
- The company runs community development programs focusing on education, healthcare, infrastructure, and alternative livelihoods. In 2023, First Resources contributed IDR 25.8 billion (USD 1.7 million) to these initiatives.
- The workforce includes 23% women, and the company provides education for employees’ children at schools within its estates.
Governance Initiatives
- The composition of independent directors on the board increased to 62.5% in 2024, while female board representation rose sharply to 37.5%, up from 14% at the end of 2023.
- The company is majority-owned by the Fangiono family, which holds a 67% stake, and the CEO, Ciliandra Fangiono, is a member of the family.
- The total CEO remuneration package for FY23 was 1.4% of core net profits.
- First Resources’ governance framework includes a Sustainability Policy (in place since 2015) and adherence to “No Deforestation, No Peat, No Exploitation” (NDPE) commitments.
Price Target and Stock Recommendation
The report maintains a HOLD recommendation for First Resources, with an unchanged target price (TP) of SGD 1.46. The valuation is based on 10x FY24 P/E. Though the company has made commendable progress on various fronts, especially in social and governance initiatives, its lack of long-term environmental targets remains a key concern.
Risks
Key risks identified for First Resources include:
- Adverse weather impacting output growth.
- Declining palm oil prices and unfriendly policies from import countries.
- Weak biodiesel demand in the face of lower crude oil prices.
- Potential suspension of RSPO membership due to deforestation allegations.
Conclusion
While First Resources is progressing in its ESG efforts, especially regarding social and governance aspects, the company’s lag in setting long-term environmental targets and its relatively high ESG risk rating (45/100) suggest a cautious outlook. The HOLD recommendation reflects the need for more ambitious long-term strategies in sustainability and profitability growth.
