First Resources’ FFB output withers as dry weather sustains in Q1

It’s the first contraction in three years.

The dry weather is taking its toll on First Resources (FR), as the company posted weak fresh fruit bunches (FFB) nucleus output of 144,113 mt for March 2016. This reflects a whopping 26% YoY plunge—the first contraction since 1Q13.

According to a report by Maybank Kim Eng (Maybank KE), March’s weak yield has pushed down by 15% YoY the FFB nucleus output for Q1 to 491,478 mt. Notably, this is FR’s first contraction since 1Q13.

Meanwhile, analysts are growing increasingly pessimistic for FR’s Q1 results as a battery of headwinds hurtle straight for the company.

For starters, the Malaysian Palm Oil Board’s spot crude palm oil (CPO) price averaged US$576 (roughly $775) per tonne, which reflects an 8% YoY pullback and a 14% QoQ climb.

Throwing in the US$50 ($67) per tonne CPO export levy imposed by the Indonesian government since 16 July 2015 to fund its biodiesel programme, the actual CPO price proceeds received by Indonesia planters will further plummet YoY.

Meanwhile, on FR’s refinery contribution, refining margins are expected to be weak given the seasonally low crop period as well as Indonesia’s refining overcapacity situation.

In sum, the weak CPO average selling price, low output and refining margins, and US$14m new annual depreciation charges effective 1 January 2016, Maybank KE sees profits for Q1 to be below expectations.

“We worry that its FFB output growth will remain in negative territory in 2Q16 and FR may not fully benefit from the recent CPO price hike,” Maybank KE notes.