Phillip Securities Research Pte Ltd

First Resources Limited

28 September 2010
Market Singapore Stock Exchange Closing Price
Sector Plantation Buy S$1.14
Reuters FRLD.SI
Bloomberg FR SP Target Price
S$1.33 (+16.7%)

 Upstream planter with about 115,000 planted area in Riau and West
Price
Kalimantan
Last Price 1.14  One of the youngest prime producing plantations with an weighted average
52w k High (1/14/2010) 1.26 age of 8 years (Industry weighted average 12-13 years)
52w k Low (10/5/2009) 0.83  Strong operations efficiencies despite smaller plantation size. FY09: FFB Yield
Shares Outstanding (mil) 1468.459 of 21.5 tonnes/ha and OER of 23.7%
Market Cap (S$ mil) 1674.04  Assume CPO to trade at US$800/tonne and using DCF model with a cost of
Avg. Daily Turnover (mil) 0.86 equity of 11.78% and long term growth rate of 3.5%, we are Initiating coverage
Free float (%) 18.30 with a Buy recommendation and target price of S$1.33.
PE (X) 10.82
Upstream player with a favorable demographics
PB (X) 2.06
First Resources is one of the purest upstream planter which manages approximately 115,000
ha of planted oil palms plantations in Indonesia. The group has one of the youngest oil palms
Price perform ance % and we expect CPO production to increase with yields to continue to improve in the next few
1M 3M 6M years. Furthermore given the positive industry dynamics, with growing demands from
Absolute 2.7% 4.6% 0.0% emerging countries and energy needs, we believe the group is well positioned to benefit from
Relative -3.2% -4.6% -7.1% high CPO prices, given its focus on upstream operations.
1.3 f r sp STI (rebased)
Strong operations efficiencies
1.25 Despite its relatively younger and smaller plantations, First Resources fair well among its
1.2 older and larger peers in terms of its operation efficiencies. The FFB yields and CPO
1.15 extraction rate (“OER”) being the industry’s key performance indicators are strong and we
1.1 expect these metrics to continue to improve as its young plantation matures. For FY09 is FFB
1.05 Yield is 21.5 tonnes/ha while its Oil Extraction Rate (“OER”) is one of the highest by industry
1
standards with 23.7%.
0.95
Investment risks
0.9
Associated risks are regulatory risk, commodity price risk and foreign exchange risk.
0.85
Regulatory risk involves the implementation of unfavorable policies in either the origination or
0.8 destination markets. These policies may arise due to trade protectionism, health-related
27-Sep-09 27-Jan-10 27-M ay-10 27-Sep-10
issues or even environmental conservation. The group does sell their product in the spot
Major Shareholders % market and is subjected to commodity price risk as the group does not hedge against price
1 Lizant Investment 71.22 risk in the futures markers. First Resources sales while denominated in Rupiah are
2 Infinite Capital Fund 9.12 referenced to US dollar prices of the products and majority of its operating costs are in
3 Credit Suisse Int 2.04 Rupiah, therefore a depreciation of USD against the Rupiah will adversely affect the group’s
Source: Bloomberg earnings.

Initiate coverage with a Buy recommendation and target price of S$1.33

In our model, we assume CPO prices to trade at US$800/tonne. We are initiating coverage
Analyst on First Resources with a Buy Recommendation with a target price of S$1.33, implying a
Jasmine Lee potential upside of 16.7%.

65 65311229
FAX 65 65364435 Conso' Profits EPS DPS BVPS ROE P/E Yield P/BV
 jasmineleews@phillip.com.sg Ending (IDR b) (SG cents) (SG cents) (SG$) (%) (X) (%) (x)
Web: www.poems.com.sg 12/08 A 1091.8 11.48 1.40 0.44 26.23 9.93 1.23 2.59
12/09 A 1169.4 12.38 1.07 0.56 21.92 9.21 0.94 2.02
12/10 E 948.4 10.04 0.90 0.66 15.30 11.36 0.79 1.74
MICA (P) 153/01/2010 12/11 E 1148.1 12.15 1.09 0.77 15.85 9.38 0.96 1.49
Ref No:SG2010_0326 12/12 E 1274.5 13.49 1.21 0.89 15.17 8.45 1.07 1.28
First Resources Limited 28 September 2010

Company Profile
First Resources Limited is one of the up and rising crude palm oil producers in Indonesia. With
primary business activities in cultivating oil palms, harvesting their fresh fruit bunches (“FFB”)
and then processing them into crude palm oil (“CPO”) and palm kernel oil (“PK”), which are then
sold both domestically and globally.

Business Segments
Upstream Operations - First Resources plants and cultivates oil palms, harvesting their FFB
and processing them into crude palm oil (“CPO”) and palm kernel oil (“PK”) and then sells them
in the market. As of 31 June 2010, the group manages about 115,000 ha of planted oil palms of
which approximately 13,000 ha are under the smallholder ownership schemes. The plantations
are located in the Riau and West Kalimantan provinces of Indonesia. With 8 palm oil mills the
group has sufficient processing capacity to mill all their FFB internally. All these mills are
located within its mature palm oil estates in the Riau province. The group has one of the
youngest prime-producing oil palm plantations with a weighted average age of 8 years.

Downstream Operations - In view of the growing global demand for alternative energy, the
Group has started construction of a refinery and bio-diesel plant in Dumai, Riau province. The
bio-diesel production facility has a production capacity of approximately 250,000 tonnes per
annum. First Resources is currently adding further fractionation capability to the plant which will
be able to produce Olein and Stearin in additional to bio-diesel. The plant is expected to be
ready by 1H11.

Palm Oil
Oil palm trees will produce fruits in bunches also known as Fresh Fruits Bunches (“FFB”).
Generally prime-producing oil palms produce 25 to 30 tonnes of Fresh Fruits Bunches (“FFB”)
per hectare each year as compared to immature oil palms which produce about 6 to 20 tonnes
of FFB per hectare each year. Beyond 18 years, oil palms are categorized as ‘old’ and their FFB
yields will steadily decline with age. Oil palms are usually replanted after 25 years due to their
declining yields.

Fig. 1: Age of the Oil Palm and FFB Yield Per Ha (tonne)
Immature Young Prime Old

26 26 26 26 26 26
25 25
24 24
23 23
22
21
20
19 19
18 18
17
15

11

0 0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Source: Company, Phillip Securities Research

Once the FFB are removed from the trees. It has to be transported to the mills within 24 hours to
extract the oil. Two types of oil are extracted from the FFB, the Crude Palm Oil (“CPO”) which is
found in the pulp and the Palm Kernel oil (“PK”), which is found in the kernel. Oil Extraction Rate
(“OER”) in the industry is about 20%.

Palm oil and palm kernel oil have a wide range of applications, with about 80% used for food
application while the rest is feedstock for other non-food applications like the production of bio-
diesel and soaps. Among food uses, palm oil is used for the production of cooking oil,
shortening and margarine.

In 2009, the world production of palm oil was 45 million tonnes and is one of the most important
edible vegetable oil after soybean oil. Indonesia and Malaysia are the largest producers of palm
oil, contributing 47% and 40% of the world’s palm oil respectively. Indonesia palm plantations
are comparatively younger than their Malaysia counterparts.

2
First Resources Limited 28 September 2010
Industry Analysis
Consumption trends in emerging countries - The two main drivers of demand for food are
population and income growth and we think that one of the more important macro trends to
watch is the consumption trends of emerging countries (i.e. China, India and Indonesia). The
consumption trends of emerging countries are extremely important as these countries 1) houses
more than half of the world’s population and 2) have higher income elasticity for food as
compared to their richer Western counterparts. Rising income of the lower income earners will
increase the demand for food more than the rising income of the higher income earners. Rising
affluence in these developing countries will increase edible oil consumption significantly as an
increase in income will encourage low-income earners to eat more nutrients and oil-rich food.

Currently consumption per capita is about 20 kg/annum, 12 kg/annum and 19 kg/annum in

China, India and Indonesia respectively. Against the global average and US consumption per
capita of 25kg/annum and 40kg/annum, we see significant room for growth.

Palm Oil: Both a Food and Energy Crop - Another increasingly important macro trend is the
increased use of bio-fuels. Higher oil prices have increased the incentives to use food crops like
soybean, sugarcane, palm oil and corn for bio-diesels production instead of food production.
When crude oil prices are above US$80/bbl, a clear positive correlation can be observed
between the crude oil and food crop prices. Hence with an additional demand source for palm
oil as an energy crop and given the world’s insatiable demand for energy, we view this
positively for palm oil.

Environmental Conservation - Another factor that is weighing down on the supply and
production of CPO is the increasing awareness of environmental conservation and increasing
pressure from environmentalist group which are slowing down and limiting palm oil plantation
expansion. In the long run, it has a detrimental effect on the sector, as 1) land rights will be
harder to get and 2) it will probably be more costly to acquire and develop new palm plantations.

Investment Merits
One of the Purest Upstream Play
Currently, all of First Resources’ profits are derived from its plantation division. Given the
positive industry dynamics we are bullish on palm oil prices and we think that being one of the
purest upstream player in the industry, the group is well positioned to benefit from the high CPO
prices.

Strong Operational Efficiency

Despite its relatively younger plantations, First Resources fair well among its older and larger
peers in terms of its operation efficiencies. The FFB yields and CPO extraction rate (“OER”)
being the industry’s key performance indicators are strong and we expect these metrics to
continue to improve as its young plantation matures.

Favorable Age Profile of Plantation

The Group has a young and prime producing plantation and we expect FFB and CPO yields to
increase with minimal increase in cost. FFB and CPO yields might sometimes decline when
there are more new plantings, but overall these operational metrics should be trending higher
for the group in the next few years, given that First Resources 1) have very little (~1%) of old oil
palms and 2) has the bulk of its trees in their early prime age.

Risk Exposures
Regulatory Risk - Unfavorable regulatory policies both in the origination (in this case,
Indonesia) and destination (e.g. China, India, EU-27) countries may be implemented in terms of
trade protectionism, health issue, or even environmental conversation.

Commodity Price Risk - Prices received for the sales of their CPO and PK are based on the
prevailing international market prices. Costs of fertilizers and fuel are also based on international
market prices of these products and the Group does not hedge against commodity price risk
through the futures market. However the Group does enter into fixed forward price agreements
with some customers to lock in prices. It is the company policy to sell not more than 50% of its
palm oil forward.

Foreign Exchange Risk - First Resources sales while denominated in Rupiah are referenced to
US dollar prices of the products and majority of its operating costs are in Rupiah, therefore a
depreciation of USD against the Rupiah will adversely affect the group’s earnings.

3
First Resources Limited 28 September 2010
Future Outlook
Expansion of Plantation - The group has plans to increase its planted area to 200,000 ha by
2015 through organic planting or acquisition. Currently the group has a total planted area of
115,000 ha and 75,000 ha of unplanted land bank, which will allow the group to continue its
plantation expansion plan. Averaging out the total increase in planted area over the next five
years, the group will have to plant an average of 15,000 ha per annum and we think that it’s a
reasonable and achievable target.

Fig. 2: Total Planted Area (‘000 Ha), FY06-FY15E

250
Target total planted area
to be 200,000 Ha by 2015 200
200 179
159
145
150 132
120
109
95
100 86

50

0
FY07

FY08

FY09

FY10E

FY11E

FY12E

FY13E

FY14E

FY15E
Source: Company, Phillip Securities Research

Development of Downstream Activities - First Resources intends to construct downstream

capacities for the production of bio-diesel, palm olein and stearin to diversify and shift product
mix to higher value-added products. The facility is expected to be ready by 1H11.

Porter’s 5 Forces

Bargaining Power of Buyers

Strong, as buyers can buy CPO
from other plantation companies
Malaysia and Indonesia.

Threats of New Entrants Threats of Substitutes

Low, as it is becoming increasingly
difficult and costly to purchase a
sizeable tract of land for plantation
activities. Problem is further
exacerbated with environmental
conservation concerns.
Competitive Rivalry in the High, all edible oils are substitutes
Industry of palm oil. However the principal
High, Plantation companies substitute of palm oil is soybean
operates in a competitive market oil which usually trades at a
and are price takers. premium to palm oil.

Bargaining Power of Suppliers

Low, suppliers of fertilizers in
Indonesia have limited power as
these products are regulated in
Indonesia.

Source: Phillip Securities Research

4
First Resources Limited 28 September 2010
SWOT Analysis
Strengths Weaknesses
 Favorable demographics  Smaller plantation size
 Strong operation efficiencies  No RSPO Certified Palm Oil
Opportunities Threats
 Downstream expansion – Bio  Environmental conservation
diesel and Branded cooking  Protectionism/Regulatory policy
oil

Strengths
Favorable Demographics - One of the key strength of the Group is the favorable
demographics or maturity profile of its plantations. And with the maturing profile of its
plantations we expect 1) FFB yields to improve 2) average production cost to decline as yields
improves over the next few years. The current weighted average age of its oil palms is 8 years
old with an average FFB yield of 21.5 tonnes/ha as of FY2009. Oil palms in their peak
production years (8-17 years old) are generally capable of producing an average of 25-30
tonnes of FFB per hectare per annum. With the bulk of its trees in their early stages of peak
production while the remaining trees are entering peak production, we believe that the profile of
its plantations will support the increase in the production of FFB with minimal increase in costs
over the next few years. With the improving yields and minimal increase in production costs, we
should see the group’s average production cost of a tonne of CPO decrease and all these
should happen as its plantation matures.

Fig. 3: Age Profile and Operations Efficiencies, FY08-1H10

Plantation Statistics FY08 FY09 1H10
0-3 years (Immature) Ha 32,625 36,990 36,895
4-7 years (Young) Ha 9,583 18,356 23,202
8-17 years (Prime) Ha 53,033 53,118 53,375
≥18 years (Old) Ha 0 453 1,498
Matured area Ha 62,616 71,927 78,075
Planted Area Ha 95,241 108,917 114,970
FFB yield Tonnes/Ha 22.42 21.50 8.00
CPO extraction rate % 22.83 23.70 23.70
Average age yrs 7.50 7.50 8.0
Source: Company, Phillip Securities Research

Strong Operation Efficiencies - Despite its relatively younger plantations, First Resources fair
well among its older and larger peers in terms of its operation efficiencies. The FFB yields and
CPO extraction rate (“OER”) being the industry’s key performance indicators are good in First
Resources case. Moreover we expect these operation efficiencies to continue to improve as its
younger oil palms matures. Improving the FFB yield and OER will increase the production of
CPO with minimal increase in production cost.

Fig. 4: FFB Yield (Tonnes/Ha) across peers, FY2009

30

25

20

15

10

0
IOI Corp

Golden

KLK

Astra Agro

Resources

Sime Darby

Wilmar

Indofood

Lonsum
Agri

Agri
First

Source: Companies, Phillip Securities Research

5
First Resources Limited 28 September 2010
Fig. 5: OER (%) across peers, FY2009
24.0
23.5
23.0
22.5
22.0
21.5
21.0
20.5
20.0
19.5
19.0

Resources

Lonsum

Golden

Astra Agro

Indofood

Sime Darby

IOI Corp

KLK

Wilmar
Agri

Agri
First
Source: Companies, Phillip Securities Research

Weaknesses
Smaller Plantation Size - Currently, First Resources has one of the smaller plantations when
compared to its listed peers. The group has an unplanted landbank of 75,000 ha. Of the
115,000 planted area approximately 72,000 ha are mature. However the group has plans to
double its planted area to 200,000 ha and to grow their CPO annual production to 1 million
tonnes in the next five years.

Fig. 6: Planted Area, FY2009

600,000 Mature Area (Ha) Immature Area (Ha)

500,000

400,000

300,000

200,000

100,000

0
Sime Darby

Golden

Astra

Wilmar

Indofood

KLK

IOI Corp

Resources

Lonsum
Agri

Agri

First

Source: Companies, Phillip Securities Research

No RSPO Certified Palm Oil - Having RSPO Certified Palm oil is becoming increasingly
important since Greenpeace’s allegation that Sinar Mas (parent of Golden Agri) has unlawfully
destroyed rainforest for their palm plantations and this has caused Golden Agri some contract
cancellations from major customers like Unilever, Nestle and more recently Burger King. We
believe this is an increasingly important issue, as companies (particularly Western companies)
would spend more to enhance their images by buying environmentally-friendly palm oil, than to
risk being associated with deforestation. Currently, there are only 16 companies selling RSPO
Certified Palm Oil and we have provided the list in Fig. 7. and we have also highlighted some of
First Resources peers.

6
First Resources Limited 28 September 2010

Fig. 7: List of RSPO Certified Producers

List of RSPO Certified Producers
Company Name Country
Aarhus Karlshamn United Kingdom
Archer Daniels Midland (ADM) Netherlands
Cargill BV Netherlands
Cargill Palm Products Sdn Bhd Malaysia
Danisco Enablers Denmark
FELDA Malaysia
IOI Group Malaysia
Kuala Lumpur Kepong Berhad Malaysia
Kulim (Malaysia) Berhad Malaysia
New Britain Palm Oil Ltd Papua New Guinea
PPB Oil Palms Berhad Malaysia
PT Musim Mas Indonesia
PT PP London Sumatra Indonesia Tbk Indonesia
Sime Darby Malaysia
United Plantations Bhd Malaysia
Wilmar International Ltd Singapore
Source: Roundtable on Sustainable Palm Oil (RSPO), Phillip Securities Research

Opportunities
Downstream expansion - As mentioned above, the increased used in bio-diesel is another
macro trend to watch as it will be one of the key drivers of demand for CPO as fossil fuel prices
continues to rise. Furthermore, First Resources can work towards being like its bigger peers,
moving more downstream into branded cooking and other palm oil products, since the branded
cooking oil market is still quite small as compared to the unbranded cooking oil in Indonesia.
Currently in Indonesia, the branded cooking oil has only approximately 18% market share as
compared to bulk (unpacked) cooking oil with the reminding 82%. With rising affluence of the
Indonesian, we should see more health conscious consumers making the switch to branded
packed oil in the near term.

Threats
Environmental conservation - Recently we see a rise in awareness and attention to
environmental protection issues in the palm oil sector, particularly sparked off since the
Greenpeace versus Sinas Mas incident. The increasing pressure from environmental groups
might threaten or slow down the expansion of the palm oil industry.

Protectionism policy by the government (Origination or destination market likewise) - As

CPO is considered a staple, government intervention on prices and ban is quite likely when
selling prices of cooking oil gets too high. A ceiling or cap in selling price set by the government
will harm the group’s earnings as they will be unable to pass on the higher costs to their end
consumers.

Financial Review
Income Statement – First Resources reported revenue of Rp2,472 b and Rp2,038 b in FY08
and FY09 respectively. The lower revenue was due to the steep decline in average selling
prices of CPO in FY09. Note that the international CPO price was in its historical high of more
than US$1,400/tonne in 1H08 before dipping to US$435/tonne in October 2008 and closing at
US$528/tonne by the end of FY08. Hence FY09 results may look pale in comparison with the
previous year where prices where significantly stronger. However the increase in sales volume
(+7.8%) of CPO has helped to offset the effect of the falling prices in FY09. Currently all
earnings are solely from upstream operations, with sales of CPO contributing 90% of total
revenue with PK contributing the rest.

Net margin improved from 39.2% in FY08 to 51.4% in FY09 and it is largely due to gain on
foreign exchange and significantly lower export taxes (which is attributed into SG&A expenses).
The significant decrease in export taxes was due to lower average CPO price.

7
First Resources Limited 28 September 2010

Fig. 8: Revenue and Earnings, FY07-09

3,000,000 Revenue 60%
Net Profit
Net Margin
2,500,000 50%

2,000,000 40%

1,500,000 30%

1,000,000 20%

500,000 10%

0 0%

FY07

FY08

FY09
Source: Company, Phillip Securities Research

Balance Sheet and Cash Flow - Balance sheet of First Resources remains strong and gearing
remains at an acceptable level. The group’s interest cover ratio shows that it is able to afford its
current level of debt without running into any short term liquidity issues.

Fig. 9: Net Gearing and Interest Cover Ratio FY07-09

0.40 Net Debt/Equity Interest Cover Ratio 12.0x
0.35
10.0x
0.30
8.0x
0.25
0.20 6.0x
0.15
4.0x
0.10
2.0x
0.05
0.00 0.0x
FY07

FY08

FY09

Source: Company, Phillip Securities Research

The group has also issued US$100 m convertible bonds in September 2009 which would help
fund the necessary upstream and downstream expansion in the next few years. We have
forecasted capex needs for First Resources to be approximately US$85 m each for FY10 and
FY11.

Dividends - First Resources’ dividend policy is to pay up to 30% of its underlying profit
(excluding revaluation gains from fair value of biological assets). For 1H10, the group has
declared an interim dividend of SGD 1 cent.

Fig. 10: Dividend Per Share (SGD cents), FY08-1H10

2.5 To tal Dividend P er Share % o f Underlying Net P ro fit 35%

30%
2.0
25%
1.5 20%

1.0 15%

10%
0.5
5%

0.0 0%
FY08

FY09

1H10

Source: Company, Phillip Securities Research

8
First Resources Limited 28 September 2010

Assumptions & Forecast

We forecast CPO to trade around US$800-850/tonne for the rest of FY10 and FY11 due to a
tighter supply of palm oil given the erratic weather conditions and biological tree stress of oil
palms in Indonesia. Currently First Resources is purely an upstream play with no downstream
operations yet and though production volume might decline, we expect prices of CPO to remain
relatively high and trade around the US$800/tonne. Therefore we are forecasting revenue and
earnings to come in stronger in FY10 than FY09, and expect increase in CPO prices to offset
the negative effect of marginally lower production volume.

Fig. 11: Forecasts, FY10-12

FY09 1H10 FY10F FY11F FY12F
Revenue (IDR b) 2,277 1,118 2,812 3,317 3,649
EBITDA* (IDR b) 1,185 656 1,674 1,977 2,176
EBITDA Margin (%) 52.0% 58.7% 59.5% 59.6% 59.6%
CPO Production Volume 368,631 151,749 356,830 421,016 463,117
Source: Phillip Securities Research

Fig. 12: Forecasts, FY10-12

5,000 Revenue (IDR b) 600,000
4,500 EBITDA* (IDR b)
CPO Production Vol 500,000
4,000
3,500 400,000
3,000
2,500 300,000
2,000
1,500 200,000
1,000 100,000
500
0 0
FY10F

FY11F

FY12F

* Earnings before interest, tax, depreciation and amortization and excluding fair value gain of biological assets
Source: Phillip Securities Research

Management
Fangiono, Ciliandra – Chief Executive Officer, Executive Director
Mr. Fangiono has been CEO of First Resources Ltd. Since 2003. He has been Executive
Director of First Resources Ltd. since April 2007. He joined First Resources Group in 2002. Prior
to joining First Resources Group, Mr. Fangiono was at the Investment Banking Division of Merrill
Lynch, Singapore, where he worked on mergers, acquisitions and fund raising exercises by
corporates in the region. At Cambridge, he was a Senior Scholar in Economics and was
awarded the PriceWaterhouse Book Prize. He obtained his Bachelor of Arts degree from
Cambridge University (United Kingdom) in 1999 and his Master of Arts from Cambridge
University (United Kingdom) in 2003.

Jayapranata, Andrian – Vice President of Finance

Andrian Jayapranata serves as Vice President of Finance at First Resources Ltd. Mr.
Jayapranata served as the Chief Financial Officer of First Resources Ltd. He served as
Executive Director of First Resources since 2007. His previous experience at Lippo Group
includes the position of Comptroller at Across Asia Multimedia from 2002 to 2003. Previously,
he served as Finance Director and Controller at Investor Group from 2004 to 2006, Senior
Corporate Finance Manager at Raja Garuda Mas Group from 1997 to 2002, Finance and
Accounting Director at PT Wapoga Mutiara Timber from 1991 to 1997, Finance and Accounting
Director at PT Gema Lapik, Rajawali Group from 1986 to 1991, and Senior Auditor at Ernst and
Young from 1982 to 1986. Mr. Jayapranata obtained a Bachelor of Accountancy from Trisakti
University Jakarta.

Cik, Sigih Fangiono – Deputy Chief Executive Officer

Sigih Fangiono Cik has been the Deputy Chief Executive Officer of First Resources Ltd. since
2003. Mr. Fangiono is jointly responsible for the day-to-day management, including the annual
budget and the strategic direction of First Resources' business. In particular, he focuses on
project development and general affairs, including government relations and matters relating to
land permits. He began his career at PT Surya Dumai Industri Tbk as Assistant Production
Director from 2000 to 2001. He obtained his Bachelor Degree from Bronte College, Toronto,
Canada in 1996.

9
First Resources Limited 28 September 2010

Valuation & Recommendation

We valued First Resources on a DCF model with a cost of equity of 11.78% and a long term
growth rate of 3.5% to derive a target price of S$1.33. Representing a potential upside of
16.7%, we are recommending a Buy on the stock.

We think that First Resources possesses great growth potential given its strong operation
efficiencies and favorable plantation age profile. Rising and high CPO prices will also benefit the
upstream player, though its plantation size is comparatively smaller than its peers, with
consistent planting schedules we believe that the group will be able to continue to deliver
sustainable earnings and grow like its bigger peers. Currently the stock is trading at a P/E of
10.8x, which is at a discount to its peers which are trading at an average P/E of 16.1x. We are
recommending a Buy with a target price of S$1.33.

Fig. 13: Valuations and Financial Comparison

Currency Market Cap Last Price P/E P/B Debt to
ROE (%)
m illion (x) (x) Equity (%)
Astra Agro IDR 35,195,551 22,350 23.0 5.7 25.9 0.0
First Resources SGD 1,674 1.14 10.8 2.1 22.0 45.1
Golden Agri SGD 6,858 0.565 7.3 0.9 13.6 13.4
Indofood Agri SGD 3,315 2.29 19.4 2.2 12.2 57.6
IOI Corp MYR 37,064 5.55 17.0 3.3 21.3 43.0
KLK MYR 18,148 17 19.2 3.1 17.1 26.1
Lonsum IDR 13,713,959 10,050 16.2 3.5 23.5 8.4
Wilm ar SGD 38,872 6.08 15.9 2.6 17.1 93.7
Average 16.1 2.9 19.1
Source: Bloomberg, Phillip Securities Research

10
First Resources Limited 28 September 2010

Financials
Income Statem ent (Rp b) 2008 2009 2010F 2011F 2012F Balance Sheet (Rp b) 2008 2009 2010F 2011F 2012F

Revenue 2782.9 2276.7 2812.4 3317.3 3649.0 Non-current assets:

Cost of sales (922.5) (919.7) (928.1) (1,094.7) (1,204.2) PPE 5531.7 6782.0 7412.4 8058.4 8696.8
Gross profit 1860.5 1357.0 1884.3 2222.6 2444.8 Goodw ill 66.4 66.4 66.4 66.4 66.4
Chg in fair value of bio assets 377.7 460.5 0.0 0.0 0.0 Others 662.4 724.0 724.0 715.4 706.9
SG&A (287.4) (172.3) (210.2) (245.6) (268.8) Current assets:
Operating Profit 1950.7 1645.2 1674.1 1977.0 2176.0 Cash and cash equivalents 1092.1 1688.2 2559.5 3261.8 4081.8
Net Interest Expense (126.5) (208.8) (243.9) (265.5) (286.4) Inventories 195.0 144.7 152.6 180.0 197.9
Forex gain/(loss) (299.0) 292.8 0.0 0.0 0.0 Receivables 104.6 36.2 63.1 67.9 71.1
Shs of results of associate companies 96.8 (10.3) 0.0 0.0 0.0 Others 162.9 79.3 79.3 79.3 79.3
Income Tax (470.4) (482.3) (414.8) (496.3) (548.0) Total Assets 7815.3 9520.9 11057.3 12429.2 13900.2
Minority Interest in Earnings (59.8) (67.1) (67.1) (67.1) (67.1) Current liabilities:
Net Profit 1091.8 1169.4 948.4 1148.1 1274.5 Loans and Borrow ings 262.1 223.8 148.1 166.3 178.2
Trade payables 85.3 103.8 101.7 120.0 132.0
Grow th and Margins (%) 2008 2009 2010F 2011F 2012F Other payables and accruals 218.4 211.2 211.2 211.2 211.2
Sales grow th 64.5% -18.2% 23.5% 17.9% 10.0% Non current liabilities :
Gross profit grow th 101.1% -27.1% 38.9% 17.9% 10.0% Borrow ing 2196.8 2593.0 3335.6 3626.3 3913.6
EBIT grow th 89.4% -24.7% 41.3% 18.1% 10.1% Others 890.3 1054.8 1054.8 1054.8 1054.8
Net profit grow th 153.2% 7.1% -18.9% 21.1% 11.0% Total Liabilities 3652.9 4186.6 4851.5 5178.6 5489.8
Gross margin 66.9% 59.6% 67.0% 67.0% 67.0% Shareholders' equity:
Net profit margin 39.2% 51.4% 33.7% 34.6% 34.9% Issued Capital 2350.6 2793.8 2793.8 2793.8 2793.8
EBIT margin 70.1% 72.3% 59.5% 59.6% 59.6% Retained earnings 1705.5 2773.7 3636.7 4681.5 5841.3
Others 106.3 (233.2) (233.2) (233.2) (233.2)
Cashflow (Rp b) 2008 2009 2010F 2011F 2012F Total equity 4162.4 5334.2 6197.3 7242.0 8401.8
Net Income 1091.8 1169.4 948.4 1148.1 1274.5 Total Liabilities and Equity 7815.3 9520.9 11048.7 12420.6 13891.7
Dep & Amortization 90.8 116.0 128.1 112.6 120.1
Other operating activites (262.8) (594.5) 0.0 0.0 0.0 Key Ratios 2008 2009 2010F 2011F 2012F
Changes in Working Capital 0.0 0.0 (36.8) (14.0) (9.2) ROE 26.2% 21.9% 15.3% 15.9% 15.2%
Cash from Operations 919.8 690.9 1039.7 1246.7 1385.5 ROA 14.0% 12.3% 8.6% 9.2% 9.2%
Current Ratio 2.75 3.62 6.19 7.21 8.50
Capital Expenditure (794.9) (752.9) (750.0) (750.0) (750.0) Debt to equity 59.1% 52.8% 56.2% 52.4% 48.7%
Others (360.6) (87.4) 0.0 0.0 0.0 Avg. Days Sales Out 5.5 3.8 3.5 3.5 3.5
Cash from Investing (1,155.5) (840.3) (750.0) (750.0) (750.0) Avg. Days Inventory Out 65.4 67.4 60.0 60.0 60.0
Avg. Days Payable Out 32.3 39.7 40.0 40.0 40.0
ST Debt Issued/(Repaid) (44.6) 116.8 (75.7) 18.2 11.9 Valuation 2008 2009 2010F 2011F 2012F
LT Debt Issed/(Repaid) (146.4) 966.2 742.6 290.7 287.3 P/E (X) 9.93 9.21 11.36 9.38 8.45
Repurchase of Common Stock (63.5) 0.0 0.0 0.0 0.0 P/B (X) 2.59 2.02 1.74 1.49 1.28
Dividends paid (133.5) (101.3) (85.4) (103.3) (114.7)
Others 159.7 (84.0) 0.0 0.0 0.0
Cash from financing (228.4) 897.8 581.6 205.5 184.5
Forex adj 148.8 (251.9) 0.0 0.0 0.0
Net Change in Cash (315.4) 496.4 871.3 702.2 820.0
Cash at Beginning 1557.5 1092.1 1688.2 2559.5 3261.8 6,500 IDR 1 SGD
Cash at End 1242.1 1588.6 2559.5 3261.8 4081.8
Source: Phillip Securities Research

11
First Resources Limited 28 September 2010

Ratings History
First Resources Limited
Closing Fair
Rating Date Remarks
price (S$) value (S$)
Buy 28 September 2010 1.14 1.33 Initiation

TRADING BUY Share price may exceed 10% on the upside over the next 3
months, however longer-term outlook remains uncertain
BUY >15% upside from the current price
HOLD -10% to 15% from the current price
SELL >10% downside from the current price
Phillip Research TRADING Share price may exceed 10% on the downside over the next 3
Stock Selection SELL months, however longer-term outlook remains uncertain
Systems
We do not base our recommendations entirely on the above quantitative return
bands. We consider qualitative factors like (but not limited to) a stock's risk reward
profile, market sentiment, recent rate of share price appreciation, presence or
absence of stock price catalysts, and speculative undertones surrounding the
stock, before making our final recommendation

12
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