First Resources hinges growth on downstream business

Its refinery is operating at 70% utilisation as at September.

A muted outlook on First Resources' fresh fruit bunches (FFB) is expected for 4Q but a hope is in sight for its downstream division.

First Resources is maintaining its -10% YoY fresh fruit bunches (FFB) output guidance for FY16, which implies a flattish QoQ output in 4Q16.

RHB's projection of its FFB output is in line with management’s expectation but it believes 4Q16 could turn out stronger vis-à-vis 3Q. As such, it is revising its FFB output forecast to reflect a 7% YoY decline in FY16, followed by an unchanged 7-9% growth for FY17F-18F.

The research house also expects its downstream division should remain in the black in 4Q16.

In 9M16, the group’s refinery operated at 70% utilisation, while 1H was at 76%. The biodiesel division is also reaping positive margins, as First Resources has delivered about 90% of its contracted biodiesel output of 66,000 kilolitres to Pertamina for the May to October contract.

Although October is already over, management expects to be able to fulfil the remaining 10% of the contract soon.

For the November to April period, the company has obtained a contract to deliver 55,000 kilolitres of biodiesel to Pertamina, a reduction of 13.6% from the last contract.

"We understand that the lower allocation is due to the higher number of biodiesel players in the market," said RHB.

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