Can First Resources survive the 2016 El Niño?

Management guided for weak FFB output.

El Niño will barely faze First Resources (FR) this year, as analysts see a hefty profit-taking on the horizon for the agribusiness company.

According to a report by Maybank Kim Eng, FR is guiding for flat to -5% fresh fruit bunch (FFB) output growth in anticipation of dry weather in 3Q15.

This may be a conservative call, though, considering FR’s relatively young trees with a weighted average age profile of about nine years. On top of this, approximately 10,000 ha, or about 7%, of new area will be entering maturity during the quarter.

Further, Maybank insists that a decline in FFB output will be more than compensated for by a higher CPO prices. The current CPO price is believed to be on an uptrend, and that it will potentially peak sometime in March to May 2016, with CPO price surging above MYR2,700 per tonne.

In addition, FR has adopted FRS 16’s historical cost method, effective 1 January 2016. This revised accounting standard will lead to a one-off reduction to its total equity by $281m, and an annual depreciation expense boost of $14m.