Valuation Problems

Since the drop of First Resources the past few days, and with DBS Vickers coming up with a 12 mth TP of 1.16 and OCBC Research coming up with a technical TP of 1.08 based on resistance turned support, some have asked me if I made any mistake in my valuation etc.

To start of, I will admit that a mistake that I have made is to average up the 2nd time by purchasing more at 1.19. However, I still value First Resources with a 6 mth target price of 1.30 to 1.40, and a 12 mth target of 1.50.

DBS Vickers has stated that there could be negative earnings surprise as earlier upgrades were based on CPO price assumptions, and downgraded First Resoures to Hold due to limited upside.

As compared to other investors, I will reiterate that I am very bullish on CPO, and with the economy recovering, the prices of CPO will increase. Besides being bullish on CPO, I believe that First Resources is still undervalued to its peers, with its peers trading at approximately 15x to 16x P/E Ratio. First Resources, based on projected earnings (FY09 Results are slated to be out in March), would currently be trading at approximately 1.30. My 12 mth target is made with assumptions in an increase of CPO prices.

Furthermore, the positive issue about First Resources is that it prefers organic growth over acquisitions, although the management has not ruled out on acquisitions. Organic growth is important because it prevents the company from overpaying for growth. Similar mistakes have been made by companies in other industries, and I believe that the management is setting First Resources on the right path.

The DBS report can be found here. The writeup on Thakral will be posted later today. I will be heading down to the Budget Terminal since I am in the vicinity to check out Tiger Airways.