First Resources to flourish on back of Indon export levy, intensifying El Nino threat

It remains a top pick among investors.

First Resources is set to flourish on back of the intensifying El Nino threat and new CPO policies in Indonesia, according to a report by UOB Kay Hian.

UOB Kay Hian believes that the group's downstream operations would likely
benefit from the implementation of export levy starting on 1 Jul 15. The tax difference between CPO and refined products of US$20/tonne will give refiners a margin buffer.

Besides that, the biodiesel subsidy which will be supported by the Crude Palm Oil Supporting Fund’s (CPO Fund) collection of export levy, and the increase in biodiesel mandate would help support FR’s biodiesel production in Indonesia. FR is among the top 5 biodiesel producers in terms of installed capacity in Indonesia.

UOB Kay Hian said that First Resources remains as investors’ favourite pick given its good track record to deliver better-than-peers’ performance and good stock liquidity that fit the requirements of larger foreign funds

“FR stands to benefit from the rising CPO price trends as it is sensitive to CPO price movements due to its good production growth. CPO prices tend to react positively to the El Nino phenomenon. If El Nino turns out to be a strong event, CPO prices are likely to rally. For every RM100/tonne increase in CPO prices, FR’s EPS would increase by 10.5% from our forecasted 2016 EPS,” said UOB Kay Hian