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

Published on 21 Jul 2017.

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

The ratings reflect the Group’s still-strong operating performance. Among the 10 largest (by planted hectarage) listed oil palm planters globally, FRL continued to demonstrate good plantation management. Its productivity metric of 0.9 metric tonnes (MT) of CPO per mature hectare (ha) in 1Q FY Dec 2017 remained comparable to that of regional peers. The Group’s tree maturity profile is viewed as favourable, with the weighted-average age of palms standing at 11 years as at end-March 2017. FRL’s fresh fruit bunch (FFB) production rebounded by a very strong 43.7% in 1Q FY Dec 2017 after having declined by 5.1% in FY Dec 2016. Going forward, the Group’s young and immature palms, which made up 42% of its total planted area as at end-March 2017, will ensure steady and robust FFB production as they progressively age. In addition, the Group’s cost structure – among the leanest in the industry – has kept its OPBDIT margin above 40%, providing financial buffers amid industry downcycles.

The ratings continue to reflect FRL’s solid financial profile. Given the strong recovery in FFB production, FRL’s operating profit before depreciation, interest and tax (OPBDIT) tripled y-o-y to US$87.6 million in 1Q FY Dec 2017, boosting its annualised funds from operations (FFO) debt cover to 0.65 times (FY Dec 2016: 0.45 times). For the full year and going forward, FFO debt cover is envisaged to remain above 0.40 times. FRL’s operating cashflow is expected to amply meet its lighter capex requirement, thus alleviating pressure for further debt funding. As at end-March 2017, the Group’s gearing ratio marginally improved to 0.46 times (end-December 2016: 0.48 times) on the back of higher retained earnings. Meanwhile, its debt-to-annualised OPBDIT ratio came in at 1.30 times in 1Q FY Dec 2017 (FY Dec 2016: 1.78 times) and is anticipated to stay below 2 times going forward. 

With a cash pile of US$302.8 million (including restricted cash), the Group’s net gearing was healthy at 0.15 times as at end-March 2017. Two debt repayments due under the Sukuk Musharakah programme this year, amounting to RM1.0 billion, will be refinanced via a combination of internal funds and committed unsecured credit facilities secured by FRL in early 2017.

Moderating the ratings is FRL’s susceptibility to the volatility of CPO prices and rising pressure from environmental issues. Given that all its estates are in Indonesia, the Group is exposed to the more challenging operating environment in the republic, where regulations are evolving and negotiations with land owners are protracted. Nevertheless, some comfort is drawn from FRL’s more than 20 years of operations and experience in managing some of these risks.

FRL is a plantation player listed on the Singapore Exchange, with assets located in Riau, East and West Kalimantan provinces of Indonesia. As at end-March 2017, the Group had an oil-palm planted area of 208,923 ha and 14 palm oil mills with an annual milling capacity of 4.8 million MT.

Analytical contact
Kathleen Por
(603) 7628 1015
kathleen@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my