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First Resources
Aug 19 close: $0.98
DMG & PARTNERS SECURITIES,
Aug 19
WE are positive on First Resources' (FR) outlook, as we believe that strong organic growth will continue with its average age of trees falling within peak production age. In addition, its low cost of production of less than $200/tonne will help keep its bottom line in shape. Maintain BUY, with a TP of $1.19.
In spite of the harsh conditions in early 2009, when there was drier than usual weather and tree stress was apparent, FR still managed to be one of the top few in the industry in terms of FFB production growth (+10.1 per cent y-o-y for Q209 and +8.2 per cent y-o-y for H109).
This compares to -36 per cent to +7 per cent for its peers. This outperformance can be attributed to the maturity profile of its trees, which have an average age of eight years. This falls within the peak production age, providing a platform for further production growth with minimal capex going forward.
We note that FR's cash cost of production came in at less than US$185/tonne in Q209, below management's target of US$200/tonne (nucleus). This was attributable to higher CPO yield per ha, as well as relatively lower harvesting costs.
China consumed 13 per cent of global palm oil supply in 2008. With consumption per capita relatively low at 22.4kg (50 per cent of developed countries level), there is plenty of room for demand growth as income per capita increases.
In our earlier results note, we raised our revenue by 16.6 per cent for FY09 and 20.9 per cent for FY10. The gross margins have also been bumped up to 56 per cent for FY10, from 49 per cent previously.
Hence, our earnings estimates were lifted by 160.2 per cent
to 834.8 billion rupiah (S$120 million) for FY09 and 51.3 per cent to 930.5
billion rupiah for FY10. Based on 13x FY10 P/E (10 per cent discount to its
peers due to its smaller scale), we derive a TP of $1.19.
BUY
City Developments
Aug 19 close: $9.67
CIMB-GK, Aug 19
WE hosted a luncheon for CityDev on Aug 18. Management was represented by Goh Ann Nee, group CFO and Chia Ngiang Hong, group GM.
Is demand sustainable? Management believes that demand in the mass market is more resilient than that at the high end. This is where management appears most comfortable with. However, when queried about pricing and whether ASPs can be sustained beyond $1,000 psf, its views were more cautious.
In CityDev's mass market launches, most buyers have actually been opting for the Progressive Payment Scheme over the Interest Absorption Scheme.
Also, management noted that many buyers actually are not taking up more than 80 per cent of the loan-to-value (LTV) ratio from banks as they are comfortable with injecting more equity. We believe these suggest that demand for new homes in this cycle is likely to be more bottom-up driven than speculation.
Credit and financial position: Management reiterated the strength of its balance sheet. Unutilised bilateral credit lines are still aplenty coupled with three untapped medium-term note programmes still available. Availability of funding has never been an issue for the group. Current net gearing, based on its commercial assets valued at cost, is in good shape at 0.45x.
Possible launches: As guided during its recent briefing, CityDev aims to launch three new projects in the next six to 12 months. The Hong Leong Gardens site is likely to be the first, with indicative pricing of $850-900 psf. The Albany at Thomson is likely to be priced at $1,100 psf while The Quayside Isle at Sentosa Cove is unlikely to be released below $2,000 psf.
South Beach: Management was unable to elaborate on the project as it is fine-tuning the concept plan. However, management is positive that this project will ultimately be profitable.
South Beach is intended to be a mixed development with 40:30:30 GFA in office, white site and hotels respectively. The deadline for completion is end-2016. Management is comfortable with this timeframe as it believes that construction costs will continue to slide.
Offices: Rents have softened considerably but management believes that leasing activities have stabilised in the last two months. While no rental guidance was given for Republic Plaza, management said there have been some upward reversions on a portfolio basis.
However, management appears downbeat about rent prospects returning to the peak levels of $21 psf for the building in the mid-term. SingLand recently devalued its commercial assets for the second time in a year. Singapore Land Tower, a few buildings away from Republic Plaza, is currently valued at $1,842 psf. Management believes this value is too low for its prime location.
Valuation and recommendation:
Maintain Outperform. We retain our FY09-11 EPS and RNAV estimates. Our TP,
still based on a 20 per cent premium to RNAV, has been kept at $11.76. We
remain positive on the stock for its good management track record and strong
balance sheet. We believe it is still the stock to own in the sector right
now.
OUTPERFORM
- Compiled by LYNETTE KHOO
Glossary:
Ebit - earnings before interest and tax
Ebitda - earnings before interest, tax, depreciation and amortisation
EPS - earnings per share
FY - fiscal/financial year
H1, H2 - first
or second half
NAV - net asset value
9M - nine months
P/B -
price/book value (ratio)
PE - price/earnings (ratio)
Q1, Q2, Q3 -
first, second, or third quarter
q-o-q - quarter-on-quarter
RNAV -
revised net asset value
ROE - return on equity
TP - target price
y-o-y - year-on-year
Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.
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