RAM Ratings reaffirms First Resources’ sukuk rating

RAM HOLDINGS BERHAD

Published on 21 October 2014

RAM Ratings has reaffirmed the AA2/Stable rating of First Resources Limited’s (First Resources or the Group) RM2.0 billion Sukuk Musharakah Islamic Medium-Term Notes Programme (2012/2022).

The rating reflects First Resources’ strong business profile, underpinned by its over 2-decade operating track record in the Indonesian oil palm sector. The Group’s expertise in the cultivation and management of plantations is reflected in its CPO yields that have averaged about 5.0 MT per mature hectare over the last 3 years. It also has a lean cost structure, with a cash cost per metric tonne of nucleus CPO of USD255 for FY Dec 2013 that ranked among the lowest in the industry. These factors  contributed to First Resources’ commendable adjusted OPBDIT margin of about 54.2% in FY Dec 2013 (FY Dec 2012: 53.6%), providing the Group with a substantial buffer against CPO price shocks. We note that its relatively young tree-profile, that averaged about 8 years as at end-June 2014, positions the Group well for future production growth.

Elsewhere, First Resources’ financial profile is healthy. In spite of a smaller equity base attributable to large foreign currency translation adjustments, the Group’s adjusted gearing ratio remained unchanged y-o-y at 0.47 times as at end-December 2013, while its adjusted net gearing ratio was sturdy at 0.21 times (end-December 2012: 0.12 times). The Group’s strong profitability that was boosted by higher selling prices realised from forward contracts had supported its robust debt-servicing ability in FY Dec 2013. Its adjusted funds from operations debt cover and adjusted operating cashflow debt cover (OCFDC) came in at 0.51 times and 0.44 times, respectively (FY Dec 2012: 0.46 times and 0.41 times). While a softer CPO price environment would narrow the Group’s profitability margins, First Resources’ operating competency is expected to keep its OCFDC above 0.30 times and gearing ratio below 0.50 times over the medium term.

The rating remains moderated by the Group’s susceptibility to volatile CPO prices and the cyclical nature of the plantation sector – inherent risks for all planters. With its core operations located entirely in Indonesia, First Resources is also deemed to operate within a more challenging landscape relative to its Malaysian peers. The republic’s still-evolving institutional and legal frameworks heighten operational uncertainties and complexities. In this regard, we are cautious of potential policy changes within the republic’s oil palm sector – amid an increasingly nationalistic environment – that could pose further operational challenges to businesses and hamper growth potential. Nevertheless, some comfort is drawn from the Group’s more than 20 years of operations in Indonesia, and its experience in managing some of the said risks.

Media contact

Juliana Koay

(603) 7628 1169

juliana@ram.com.my