First Resources FY2009 Analysis

First Resources FY2009 Highlights
* First Resources Increased PATMI to Rp1,169 Billion (US$112.5 Million) for FY2009; Ups Dividend Payment by 56%

* Record production volumes, tight cost control and lower export taxes buffer 18% lower revenue

* Well-placed to fund capex needs and dividend payments from robust operational cashflows and strengthened balance sheet

* Consistent planting strategy augments the Group’s position as a leading producer, enabling it to ride upturn in CPO prices

Analysis of Income Statement

For FY 2009, First Resources experienced an 18% drop in revenues from the crude palm oil division, and a 23% drop in revenues from the palm kernel division. The drop in revenue was due to lower prices of Crude Palm Oil and Palm Kernel for the year. Cost of Sales remained constant from FY2008 to FY2009, even though volume produced had increased.

Selling and Distribution Costs were greatly reduced by 83% as a result of the decrease in export taxes levied by Indonesia during this period. However, G&A expenses increased due to higher bonus and higher salary paid out to their staff. The lower gross profit for the year translated to a 26% decrease in Profit from Operations less Fair Value Changes.

The gains on forex and cross currency swap resulted in a profit for the year increasing 7% YOY. Eliminating the forex, swaps and fair value effects, profit for the year dropped 55% YOY, and was 21% of sales, compared to 39% of sales the year before.

Another thing to note is that finance expenses increased to 10% of sales, from 5% the year before. The increase is due to the convertible bonds issued and a smaller percentage capitalized from the year before.

P/E ratio for the year was at 8x.

Analysis of B/S

The Balance Sheet strengthened over the past year. Assets increased by 22% YOY, with Liabilities increasing by 13%. The increase in assets was attributable to a RP1trillion (SGD151 million) increase in biological assets. One thing to note is that the interest bearing loans increased by RP98billion (SGD14.8million).

Current Ratio increased from 2.75 in 2008 to 3.62 in 2009, and leverage dropped to 0.70. Net Asset Value was at SGD0.56. ROE dropped from 27% to 22% due to a lower asset turnover ratio.

First Resources Land Bank

First Resources grew its total planted area to 108,917 hectares, adding 13,000 hectares over the past year. Its planted area is approximately 50% of its total land bank.

Comparison with Other Companies

As Golden Agri turned in a lower than expected profit for the last quarter, the 2 companies that will be compared to First Resources are Wilmar and Indofood Agri.

One thing I would like to point out is that First Resources revenue performance this year was below analyst expectations, which could translate to the lower P/E ratio as compared to Wilmar and Indofood Agri.

One thing to note about Indofood Agri is that the high performance relative to Wilmar and First Resources is due to Fair Value revaluation, and more importantly, the forex changes are locked in under operating profit.

Looking at the figures above, I believe that First Resources is undervalued to its peers, with the industry trading at approximately 15x P/E. The adjusted P/E ratios when FV is taken out of he equation, assuming that the FV changes are shared among Equity Holders and Minority Interests, put Wilmar at 16x P/E, Indoagri at 21x P/E and First Resources at 13x P/E. Like it was mentioned earlier, one thing to take note of is the finance expense.

With about 50% of its planted area still immature, First Resources is poised to continuing growing and is the growth company to look into for Palm Oil.