First Resources: More value in store

More Indian consumption for world＊s cheapest oil. Despite the global recession, Indian consumers are enjoying world market prices for palm and soybean oil, the first time in a long while as they had long been subject to hefty import duties to protect domestic soybean farmers. Indian palm oil consumption is forecast to rise by almost 1 kg /capita this year from 4 kg/capita last year, after which, it may be hard to reduce from the new level.

Time to accumulate. With over 170,000 ha of land bank to fill, the group targets to achieve 10,000 ha of new planting p.a. Given this target, we now extend the group＊s new planting from 2009F until 2013F. Long-term incremental earnings from these expansions translate to higher valuation for the stock to S$0.80 from S$0.70. We see current price weakness as a good entry point to accumulate FR, which is the cheapest in our universe.

Normalized§ production pattern in 2H09. FR management pointed to a potential supply disruption between late August and late September, given a month of fasting in Indonesia and Malaysia, followed by 1-2 weeks of Eid holidays. At the same time, demand should seasonally pick up through October for Deepavali and mid-Autumn festival.

Stronger 2Q09 earnings. We expect the group's profits to rebound in 2Q09, mainly on the back of stronger IDR, which should work to reverse last quarter FX losses. The group had locked in prices between US$450 and US$500 in 2Q09 up from US$450 in 1Q09. Around 15% of its 2H09 volume had been locked in at US$600 (all FOB).

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