First Resources Ltd’s Latest Earnings: Get Ready For Lower Production Levels Soon

First Resources Ltd (SGX: EB5), a palm oil producer, had announced its fiscal third-quarter results earlier today. Here’re the highlights.

The business and finance scoop

For the first nine months of 2015, First Resources had seen a 26.4% year-on-year drop in revenue to US$322.8 million. The decline was mainly due to the lower average selling prices and volume of palm oil products sold.

The top-line decline had resulted in First Resources’ profit falling by 22.9% from a year ago to US$88.1 million.

Operationally, there were mixed signals coming from First Resources for the first nine months of 2015. Sales volume for palm kernel had jumped by 13.4% to 111,578 tonnes from a year ago. But, the sales volumes for crude palm oil and refinery & processing had fallen. The former dipped by 0.2% to 481,149 tonnes while the latter had collapsed by 26.2% to 302,725 tonnes.

First Resources ended the reporting quarter with a net debt to equity ratio of 26%, up from 21% seen at end-2014. That’s a reasonable amount of leverage and should not be a concern for investors.

The company’s plantations currently have an average age of 9.0 years with 28% of its trees still in the immature stage (0-3 years old). As the young trees get older in the future and reach the prime production age of between 8 and 17, they should add to the production volume of the company.

What lies ahead

In the earnings release, First Resources’ management commented that they expect some form of recovery for palm oil prices to happen over the near-term future due to supply-concerns following dry weather in Indonesia. Moreover, there’s the implementation of the biodiesel policy in Indonesia (which will see the mix of palm oil in biodiesel increase from 10% to 15%) which can provide added impetus to push palm oil prices higher.

But even if palm oil prices do climb, First Resources may not be able to take full advantage of it – at least not in the next quarter. Management expects First Resources’ production levels to decline seasonally in the fourth-quarter as production has peaked in the third-quarter.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim owns First Resources Ltd.