First Resources - FY 2009 Detailed Fundamental Analysis

First Resources Limited is one of the leading oil palm plantation companies in Indonesia. It is an upstream operator with primary business activities in the cultivation and harvesting of oil palms, and the processing of fresh fruit bunches into crude palm oil for local and export sales. Established in 1992, FR is one of the fastest-growing plantation companies in the region. It manages more than 100,000 hectares of planted oil palm plantations and operate 8 palm oil mills in Indonesia. FR's plantations produced approximately 1.4 million tons of fresh fruits bunches and 323,000 tons of crude palm oil in 2008.

Following my profitability analysis and valuation analysis, FR has proven to be one of the interesting stocks amongst the 5 palm oil listed business in SGX. The following charts are a detailed fundamental analysis of First Resources from FY 2006 - FY 2009. (click charts for full sized image)

First Resources scored very well on the comparative profitability analysis, coming in first amongst its peers. It is interesting to note that this is despite the fact that its profitability numbers actually declined from FY2008 to FY2009. Across the board FR shows consistently high profitability. It consistently posts ROE above 20% and ROA above 15%. FR's high profitability is not a flash in the pan.

FR's profit margins are also consistent. Even with the big fluctuations in CPO prices up and down, gains in biological assets appear to be quite consistent over time. Gross and operating margins are also fairly consistent. Net profit margin has been rising since FY 2007, it is likely to revert to the mean.

FR's leverage has been consistently improving over time since IPO. If the company keeps this up, this is good for shareholders as it means that financial risk is lowered.

Asset utilisation is fairly consistent. Good upward trend in the receivables turnover.

Fairly consistent asset composition.

All in all, nothing very alarming, in fact good profitability numbers over time are a good sign for prospective investors in this stock.

Palm Oil Stocks Valuation Multiples - Wilmar, Golden Agri, Indo Agri, First Res, Kencana Agri

Based on the latest FY 2009 earnings and balance sheets statements, here are the relative valuation multiples for the 5 SGX listed palm oil stocks. The relative valuation is based on 2 key multiples: the price/earnings ratio and the price/book ratio

	Wilmar Int	Golden Agri	Indo Agri	First Res	Kencana Agri
Price per Share (SGD)	6.55	0.56	2.19	1.15	0.295
Price/Earnings Ratio	15.58	8.01	9.98	9.30	12.60
Price/Book Ratio	2.69	0.88	1.58	1.95	1.47

As can be seen, Wilmar has the highest P/E ratio. This is despite the fact that it is not the most profitable of all the companies. However, it is definitely the largest of all the companies. Its size and reputation definitely contributes to the fact that its P/E is the highest of all the 5 companies. In contrast, Golden Agri has the lowest valuation of all the 5 companies, and this is in line with its poor profitability.

Meanwhile, taking into consideration the profitability rankings, it seems that First Resources looks very reasonably valued on the basis of its P/E ratio, relative to its peers.



Based on the Price/Book ratio, Wilmar is again the most expensive. Golden Agri is the cheapest. However, this time First resources is not particularly cheap compared to the others. It has a high P/B, that partly reflects its high ROE.

Roundup: Based on all the profitability numbers and the valuation numbers, it seems that First Resources is the most reasonable buy amongst all the 5 SGX listed palm oil stocks, purely based on a financial analysis.